November 22, 2018 / 11:25 AM / 24 days ago

Italy's bond yields fall sharply on signs of budget progress, TLTRO talk

LONDON, Nov 22 (Reuters) - Italy’s government bond yields fell as much as 18 basis points across the curve on Thursday, extending the previous day’s sharp falls and tightening the gap over benchmark German bond yields.

Analysts attributed the move to a number of factors including some signs of compromise between Rome and the European Union over a contentious Italian budget and a covering of short positions.

Traders in Italy added that talk of a fresh round of cheap multi-year loans to banks — known as TLTROs — from the ECB helped explain the most recent fall in yields.

While there appeared to be no immediate trigger for that talk, ECB minutes later this session may shed more light on whether policymakers discussed TLTROs at their October meeting.

Italy’s two-year bond yield was last down 18 basis points at 0.94 percent, its lowest in almost two months.

Italian five-year bond yields also slid 18 bps to 2.48 percent, while the Italian/German 10-year bond yield gap narrowed to 305 bps from 317 bps earlier in the session . (Reporting by Dhara Ranasinghe, Additional reporting by Valentina Za in MILAN, Editing by Abhinav Ramnarayan)

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