Italian Bond Yields Fall to Five-Month Low as Budget Hopes Grow

(Bloomberg) -- Italian bonds rallied on mounting optimism for a positive end to the country's budget spat with the European Union.

The yield on two-year yields fell to their lowest level in almost five months as Italy's leaders signaled a more conciliatory stance over criticism of their plans to raise the nation's deficit above EU limits. The recent haven bid for German Bunds and a slide in global equities also helped to make returns on the Mediterranean country's securities more alluring for investors.

“Yields in Italy look much more attractive” than Bunds, said Marc Ostwald, a global strategist at ADM Investor Services. “With equities and credit in the proverbial dog house, those yields look even more enticing.”

Italian two-year bond yields dropped as much as 11 basis points to 0.56 percent, the lowest since July 19. The country's 10-year yield spread with Bunds, a key barometer of risk sentiment, dropped seven basis points to 282 basis points. Italy's FTSE MIB Index was little changed despite a global slump in equities.

The support for Italian assets came despite the Corriere della Sera newspaper saying that the Finance Minister Giovanni Tria is more tempted to resign his post than previously. Earlier this week, the country's bonds were boosted by reports that Prime Minister Giuseppe Conte is convincing Deputy Prime Ministers Matteo Salvini and Luigi Di Maio to lower the deficit next year from the 2.4 percent previously outlined.

Data on Wednesday showed Markit's services Purchasing Managers' Index for Italy rose to 50.3 in November, above the 50 threshold that separates expansion from contraction, and beating the median economist forecast for a reading of 49.3.

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Scott Hamilton

©2018 Bloomberg L.P.