Italy's three-year borrowing costs fell to their lowest level since January on Thursday.
The treasury sold 7.2 billion euros of debt on Thursday, with borrowing costs for a new three-year bond, a 15-year bond and a five-year floating-rate note all declining. The treasury had planned to sell up to 7.5 billion euros of debt.
As expected, yields fell compared to a mid-March sale, when the treasury had to pay its highest three-year borrowing costs since December after a sovereign downgrade by ratings agency Fitch and a political impasse dampened demand for its debt.
On Thursday, it sold 4 billion euros ($5.23 billion) of the three year bond at 2.29 percent, down from the 2.48 percent it paid at a sale in mid-March.
It also sold 1.67 billion euros of 15-year bonds at 4.68 percent, down from 4.90 in mid-March and 2.74 billion of five-year floating-rate notes.
Expectations for a rate cut in the euro zone soon and an unprecedented program of domestic bond purchases announced by the Bank of Japan have lifted the mood on debt markets, pushing investors to take more risk in exchange for higher returns.
That is overshadowing domestic risks in Italy, where a government has yet to be formed after February's inconclusive election, and in other euro zone peripheral countries, analysts said.
Rome has already met 36 percent of its funding needs for 2013, but with a debt pile of 2 trillion euros it has to keep a lid on bond yields which can quickly feed into higher borrowing rates for domestic firms, already battered by a deep recession.
"A risk-on mood is prevailing and investors seem to be paying little attention to the prolonged political stalemate," said Sergio Capaldi, strategist at Intesa Sanpaolo. .
"New liquidity injected by the Bank of Japan and the expectation of a more loose monetary policy in the euro zone are certainly supporting Italian debt these days," he said.
Italy's centre-left and centre-right parties are in talks over the election of the next president, while it is still unclear if a new government can be formed without going back to the electorate.
The market did not react on Wednesday to news that the outgoing caretaker government had increased its estimate for public debt in 2013 to 130.4 percent of gross domestic product from 126.1 percent.
On the grey market the new bond maturing in May 2016 traded on Wednesday afternoon with a yield of 2.35 percent compared with the 2.48 percent Rome paid a month ago.
The 15-year bond hovered on the secondary market at a yield of 4.72 percent, some 20 basis points below the level of the mid-March sale.
Some 18 billion euros in redemptions and coupon payments due on April 15 are also expected to support the sale, said Luca Cazzulani, deputy head of fixed income strategy at UniCredit.
"Demand should be better than at the recent short-dated BTP auctions," he said.
At the March sale, the bid-to-cover ratio for Italy's three-year paper fell to 1.28 from 1.37 in February, disappointing analysts and denting Italian debt on the secondary market.
On Wednesday, however, Italian 10-year bond yields fell 3 basis points to 4.31 percent after a positive sale of 11 billion of bills. The spread between 10-year Italian BTPs and equivalent German Bunds declined to 300 basis points - its lowest level in more than a month.