LONDON, Oct 4 (Reuters) - Italian bond yields tumbled on Thursday, extending the previous day’s sharp falls, after Italy said it would cut budget deficit targets from 2020 and reduce its debt over the next three years.
Prime Minister Giuseppe Conte on Wednesday confirmed a deficit target of 2.4 percent of gross domestic product (GDP) in 2019 and said this would fall to 2.1 percent in 2020 and 1.8 percent in 2021.
The estimates for 2020 and 2021 were lower than those initially reported, bringing further relief to bond markets rattled by the new government’s plans to ramp up spending.
Italian bond yields were down as much as 7-8 basis points in early trade before pulling back slightly as bond yields across the euro zone rose following a sharp overnight sell off in the U.S. Treasury market.
Italy’s two-year bond yield was last down 3.5 basis points at 1.18 percent.
The gap between Italian and German 10-year bond yields was at 277 bps, down from 280 bps late on Wednesday and just over 300 bps earlier this week. (Reporting by Dhara Ranasinghe; Editing by Saikat Chatterjee)