* Italy prepares 30-year syndicated bond sale
* Italian 30-year government bonds rise 9 bps
* German yields briefly touch 0.2 pct; first time in a week
* Final euro zone PMIs slightly better than initial read
* Euro zone periphery govt bond yields - tmsnrt.rs/2ii2Bqr (Recasts with Italy bond sale, adds quote, updates pricing)
By Virginia Furness and Abhinav Ramnarayan
LONDON, Feb 5 (Reuters) - Long-dated Italian government bond yields rose to 2-1/2 week highs on Tuesday after the government annouced it would sell a new 30-year syndicated bond.
Italy has mandated Banca IMI, BNP Paribas, Credit Agricole, Deutsche Bank and Goldman Sachs to arrange the sale and the expectation that Italy will offer a decent concession prompted investors to sell existing Italian bonds to make room for the new issue, which is expected as early as Wednesday.
The yield on Italy’s 30-year bond rose nine basis points after the annoucement to 3.66 percent, its highest since Jan. 17..
Matt Cairns, rates strategist at Rabobank, said that talks of early elections in Italy, in particular Deputy Prime Minister and League party leader Matteo Salvini’s reported push to take leadership in his own right, will mean that Italy will need to offer an attractive concession to sell the bond.
The market would, to a point, like to see a Salvini-led government, said Cairns, because he would be supportive of tax cuts. “But whether that feeds into the structural changes the country requires would be debateable,” he added.
The proposed bond sale comes as concerns grow over Italy’s economy. A survey showed that the Italian services sector contracted in January after two months of marginal growth, undershooting expectations that it would be flat.
Italy entered recession in the second half of 2018, capping a politically turbulent year, and manufacturing purchasing managers’ index (PMI) data released last week suggested the economic malaise could continue into 2019.
Other high-grade euro zone government bond yields dipped in late trade, pulling back from earlier highs prompted by a surge in European equities.
Germany’s 10-year government bond yield was last down 1.4 basis points on the day at 0.167 percent, having hit a high of 0.206 perecent after the release of better than expected euro zone data..
Demand for high-quality assets was also evident in Finland’s syndicated sale of 10-year bonds on Tuesday.
The country’s debt agency received more than 21 billion euros ($23.95 billion) of orders at one stage for the three billion euro September 2019 issue. Though that fell to 14.5 billion euros as lead managers adjusted the price, it is still a record for Finland.
The final release of the euro zone purchasing managers’ index survey was better than the initial reading released earlier in the month, though it still shows that euro zone businesses are expanding at their weakest rate since mid-2013.
Other high-grade euro zone bonds were down 1-2 bps on the day. ($1 = 0.8767 euros)
Reporting by Abhinav Ramnarayan Editing by David Goodman