Vulnerable debtor Italy sold the top planned amount of bonds at a 4.5bn euro (£3.8bn) auction on Friday and the yield on a two-year zero coupon bond fell to its lowest since May, boosting market sentiment ahead of a more demanding debt sale next week.
Analysts said the prospect of the European Central Bank offering banks more cheap three-year funds on 29 February had helped the sale, driving the yield on the zero coupon bond down to 3.01 per cent from 3.76 per cent at a sale a month ago.
But Italy faces a harder test on Tuesday when it offers a new 10-year bond for up to 3.75 billion euros. Demand for government paper that can be used to borrow cheaply from the ECB has driven down yields on Italian bonds in recent weeks but investors have been more reluctant to lend over the longer term.
With nearly two trillion euros in outstanding debt, Italy has widely been seen as too big for the euro bloc to rescue if its sovereign debt crisis were to spread further.
