* Italian yields at 3-month low, slide for 2nd straight day
* Expectations of snap Italian vote ease, lift sentiment
* Euro zone markets little changed after UK election shock
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe and John Geddie
LONDON, June 9 Italian government bond yields
tumbled to three-month lows and ended Friday with their biggest
weekly fall this year as a failure to reach an agreement on a
new electoral law was seen reducing the chances of early
Across the euro zone, safe-haven bond yields were pinned
near multi-month lows after Thursday's snap election in Britain
left the ruling Conservative party without a majority in
parliament just as talks to exit the European Union loom.
In contrast, the prospect of early elections and political
uncertainty in Italy - the euro zone's third biggest economy -
appear to have ebbed this week, boosting sentiment towards
The head of the country's ruling Democratic Party, Matteo
Renzi, said he was pessimistic over the chances of reaching a
new cross-party pact on a reform of the electoral law. That came
a day after a deal between Italy's top four parties unravelled
President Sergio Mattarella, the only figure with the power
to dissolve parliament, has demanded new voting rules be drawn
up because at present there is too much divergence between the
systems for electing members in the upper and lower chambers.
"There has been a lot of pressure on Italian bonds over the
last few weeks because the idea of going to elections this year
was not welcome for investors," said UniCredit strategist Luca
Cazzulani in Milan. "Because this is now being put under
question, the move is retracing."
Italy's 10-year government bond yield tumbled over 8 basis
points (bps) to a three-month low of 2.085 percent
, adding to a 12 bps fall on Thursday.
That meant yields fell almost 17 bps in the week, 20 bps on
Thursday and Friday - the biggest two-day slide since October
The gap between Italian and German bonds yields, a gauge of
how investors view relative risks, narrowed to around 183 bps.
That's down from more than 200 bps earlier this week.
Signs this week of progress in addressing weakness in
Italian banks and comfort that the European Central Bank shunned
talk of unwinding its stimulus scheme at a policy meeting on
Thursday also lifted sentiment towards Italian
"We've had some good news on the banking sector this week, a
shrinking likelihood of snap elections and a positive ECB
meeting, so all of this is helping BTPs," said DZ Bank
strategist Christian Lenk.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Dhara Ranasinghe; Editing by Mark Potter and Toby