September 3, 2018 / 1:11 PM / in 8 months

Italy's two-year govt bond yield reaches three-month high

LONDON, Sept 3 (Reuters) - Italy’s two-year government bond yield rose to a three-month high on Monday as positive sentiment after a Fitch rating review proved fleeting.

Shorter-dated Italian bond yields rose, reversing falls earlier in the session which analysts credited to Fitch’s decision on Friday to leave Italy’s bond rating unchanged at BBB. Although the outlook was revised down to negative.

Italian manufacturing data disappointed with the August PMI slowing sharply to 50.1, very near the 50 mark that separates growth from contraction, its sixth fall in seven months.

In addition, the leaders of the parties in Italy’s coalition government on Monday signalled they will seek leeway for deficit spending next year, putting it on a collision course with the European Commission and investors.

Italy’s two-year bond yield briefly reached a three-month high at 1.51 percent.

Germany’s 10-year bond yield hit a two-week low at 0.314 percent.

“The positive tone to BTPs at the open was down to selective judgement giving conflicting signals from the Italian government,” said Richard McGuire, head of rates at Rabobank in London. “Clearly the risks are still elevated.” (Reporting by Virginia Furness; Editing by Dhara Ranasinghe)

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