Italy Markets Gain as Populist Government Signals Budget Detente

(Bloomberg) -- Italian assets rallied after the populist government said it was looking to change its deficit target that is in breach of the European Union’s spending rules.

The yield on two-year debt securities fell to the lowest level in almost two months, while stocks gained the most in almost a month after Deputy Premier Matteo Salvini told AdnKronos newswire that next year’s shortfall in finances could be as low as 2.2 percent rather than the targeted 2.4 percent. A government official subsequently confirmed the administration’s intent.

Salvini’s comments suggest the coalition government is keen to curb market volatility as it looks to make the next move in the budget standoff with the European Union. The detente comes close on the heels of lukewarm investor reception to an auction of four-year inflation-linked bonds last week.

“I would rather say that this kind of maneuvering is likely to continue for some time,” said Christian Lenk, a strategist at DZ Bank AG. He doubted that “this will lead to a major shift of the all-in-all still skeptical view many investors have on BTPs.”

The yield on two-year bonds declined 21 basis points to 0.74 percent, the lowest level since Sept. 27. The rate on 10-year notes fell 16 basis points to 3.24 percent, taking the yield premium over German bunds to 288 basis points.

The FTSE-MIB Index of shares surged 2.6 percent, the most since Oct. 29.

Premier Giuseppe Conte, his deputies Luigi Di Maio and Salvini, Finance Minister Giovanni Tria will weigh various budget goals at a meeting at 7:30 p.m. Monday in Rome, according to a government official who declined to be named discussing confidential talks.

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