LONDON, May 28 (Reuters) - Italian bonds, stocks and the euro rallied on Monday after Italy’s president rejected a eurosceptic pick for the key role of economy minister prompting anti-establishment parties 5-Star Movement and League to abandon plans to form a government.
Italy’s president Sergio Mattarella is expected to ask a former International Monetary Fund official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable.
But the stance to block a eurosceptic economy minister boosted sentiment towards the currency.
The euro rallied 0.6 percent to $1.1728, pulling itself above 6-1/2 month lows. It strengthened 0.8 percent against the Swiss franc , bouncing sharply from near 3-month lows.
Italian 10-year government bond yields dropped 10 basis points to 2.35 percent in early trade while two-year yields dropped as much as 14 bps and was set for its biggest daily drop in three years.
The closely-watched Italian/German 10-year bond yield spread tightens nearly 15 bps from Friday’s close.
European stock futures rose on Monday, indicating a stronger open across euro zone benchmarks as an anti-establishment government failed to materialise in Italy and the U.S. showed signs of progressing towards a summit with North Korea. (Reporting by Abhinav Ramnarayan and Helen Reid, Editing by Saikat Chatterjee)