MILAN/MADRID The European Central Bank's pledge to stand by vulnerable euro zone members will be enough to ensure Italy and Spain find buyers for their bonds at parallel auctions on Thursday.
In Italy, the ECB's bond-buying scheme is seen as a solid enough counterweight to the political tension and market jitters triggered by Prime Minister Mario Monti's weekend announcement of his intention to step down early.
And in Spain, borrowing costs for medium- and long-term debt are set to fall again at the last auction of the year as the markets keep pricing in a Spanish bailout request in early 2013.
"Both Italian and Spanish sales should go well," said Cyril Regnat, fixed income strategist at Natixis.
"The ECB's bond-buying scheme is supporting Italian and Spanish bonds as investors think that being short on these bonds is riskier than being long right now."
Monti's weekend announcement that he will resign as soon as the 2013 budget law is passed, coupled with Silvio Berlusconi saying he would run for prime minister again, sparked a sell-off in the debt market on Monday as investors fretted that Italy may veer off the reform path.
That pressure proved short-lived, however, and Rome saw its borrowing costs drop to the lowest in nine months at a one-year bill sale on Wednesday, partly thanks to the ECB scheme.
Polls also suggest a pro-European centre-left government could come to power in an Italian election expected in February.
Bond strategists see a positive outcome also at Thursday's auction, the last one for Italy to be settled in 2012. The sale will allow Rome to complete its funding programme for this year.
Rome and Madrid will be tapping investor demand with similar maturities, potentially leading to upward pressure on yields. But both countries plan to issue smaller amounts than usual to avoid swamping the market.
Italy will put on the block up to 3.5 billion euros (2.8 billion pounds) of a new BTP bond maturing in December 2015, along with a maximum 750 million euros of a 15-year bond which it no longer issues on a regular basis.
Spain will issue 1 to 2 billion euros of bonds due to mature in October 2015, July 2017 and July 2040. The coupons are 3.75 percent, 5.5 percent and 4.9 percent respectively.
The 28-year debt, which Spain has not auctioned since March 2009, is seen as a test of investors' appetite for the country's long-term paper.
"It will be an easy auction (for Spain) because the volume is low and easily reachable," said Estefania Ponte, analyst at Cortal Consors. "The 28-year will get more attention to check the demand for long-term issuances."
Nearly 19 billion euros of BTP bonds are coming due in mid-December, ensuring good liquidity on the Italian bond market.
International lenders look set to release a much-needed aid tranche to Greece soon, providing a favourable broader backdrop for Thursday's two debt auctions.
Late on Wednesday, the Italian new three-year bond was offering a yield in line with the 2.64 percent paid by the treasury at mid-November on a comparable bond.
(Editing by Lisa Jucca and Hugh Lawson)