June 1, 2018 / 6:33 AM / 3 months ago

Italy's bond yields fall after anti-establishment parties revive coalition

LONDON, June 1 (Reuters) - Italy’s government bond yields fell sharply in early Friday trade after the country’s anti-establishment parties revived a coalition deal, removing the risk of fresh elections.

Two-year bond yields were down 40 basis points at 0.77 percent, retreating back to levels seen before a market rout on Tuesday saw yields rocket to 5-year highs.

Ten-year Italian bond yields were nearly 18 bps lower at 2.66 percent, well below peaks seen earlier this week above 3 percent.

That pulled the gap over benchmark 10-year German bond yields to 228 basis points, down from 242 bps late Thursday.

The leaders of the right-wing League and the 5-Star Movement late on Thursday patched up their alliance after agreeing to substitute a eurosceptic they had initially proposed as economy minister, a nomination that had been rejected by the head of state.

The coalition deal promises to increase spending and challenge European Union fiscal rules. (Reporting by Dhara Ranasinghe; Editing by Saikat Chatterjee)

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