September 4, 2018 / 7:27 AM / 8 months ago

Italian bond yields tumble as market pessimism over budget recedes

LONDON, Sept 4 (Reuters) - Italian government bond yields fell sharply on Tuesday, pulling further away from three-month highs with investors encouraged by soothing comments from Italian ministers on forthcoming budget proposals.

On Monday, sources told Reuters Italian Economy Minister Giovanni Tria was pushing the parties in the governing coalition to keep next year’s budget deficit below 2 percent of output. Deputy Prime Minister Matteo Salvini said Italy’s 2019 deficit will not breach the limit set by the European Union.

Italian bond yields fell 8-18 basis points in early Tuesday trade , having tumbled between five and nine basis points on Monday.

The two-year yield, down 18 bps, was set for its biggest daily drop in almost three months. It was last trading at 1.27 percent.

The closely-watched Italy/Germany 10-year bond yield spread narrowed to 273 basis points, 9 bps tighter on the day and 18 bps tighter than last week’s close. (Reporting by Abhinav Ramnarayan; Editing by Dhara Ranasinghe)

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