LONDON, May 19 (Reuters) - Italian government bond yields extended their drop in Tuesday trading after France and Germany proposed a 500 billion euro ($547 billion) recovery fund offering grants to regions hit hardest by the coronavirus pandemic.
The 10-year government bond yield fell nearly 10 basis points to 1.602%, its lowest since April 9. That pushed the gap over German Bund yields closer to 200 bps .
Borrowing costs for Italian 10-year debt had been trading above 2% — a level beyond which economists say Italy’s mountain of debt is less sustainable - as recently as two-weeks ago as investors worried about the country’s economic crisis.
Italy’s 2-year bond yield was down 12 bps, 5-year yields fell 11 bps.
$1 = 0.9145 euros Reporting by Tommy Reggiori Wilkes; Editing by Dhara Ranasinghe