* Italy’s Tria: no intention to leave euro, plans to cut debt
* Italy yields down, spread vs Germany tighter
* Focus turning to Thursday’s ECB meeting.
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, June 11 (Reuters) - Italy’s borrowing costs fell sharply on Monday, tightening the gap over German peers, after Italian economy minister Giovanni Tria said the new coalition government had no intention of leaving the euro zone and planned to cut debt levels.
In his first interview since taking office a week ago, Tria told the Corriere della Sera newspaper on Sunday that the coalition was committed to remaining within the single currency and wanted to boost growth through investment and structural reforms.
Italy’s two-year bond yield tumbled 50 basis points to 1.16 percent. Ten-year bond yields were down 25 bps at 2.88 percent — squeezing the gap over benchmark German Bund yields to 240 bps from 268 bps late on Friday.
Tria’s comments are reassuring for bond investors, rattled in the past month by fears that the new government - made up of two anti-establishment parties - will embark on a spending splurge that Italy can ill afford.
There has also been some wariness that eurosceptics within the coalition might try to push Italy out of the euro zone.
“Maybe Tria’s comments are a bit more blunt and reassuring than markets were expecting and that explains the move in Italian bonds, but we are still in an illiquid market for BTPs and that’s illustrated in the market reaction,” said ING senior rates strategist Martin van Vliet.
As Italian bond prices rose, pushing yields down, demand for safe-haven German bonds waned.
The yield on Germany’s benchmark 10-year Bund was up 3 bps at 0.48 percent, while short-dated bond yields in the euro zone’s biggest economy rose 4 bps to minus 0.63 percent .
The rise in yields on German bonds, viewed as one of the safest assets in the world, came even as fears of a global trade war weighed on broader financial markets after U.S. President Donald Trump backed out of a joint Group of Seven communique over the weekend.
For many bond investors, the main focus of the week remains Thursday’s European Central Bank meeting.
The bank will debate whether to end a massive bond purchase scheme later this year, taking its biggest step yet in dismantling crisis-era stimulus programme that has helped revive growth and fight deflation.
A decision on exiting stimulus is expected either this week or at the ECB’s July meeting.
“June or July, the bottom line does not change: net asset purchases are set to end soon,” said Luigi Speranza, head of European economics at BNP Paribas.
“Our central case remains for it to happen in December this year after a short taper during the fourth quarter.”
Reporting by Dhara Ranasinghe; editing by John Stonestreet