October 8, 2018 / 9:31 AM / 8 days ago

Salvini broadside pushes Italy/Germany spread to widest in five years, euro falls

LONDON, Oct 8 (Reuters) - A selloff in Italy’s bond market gathered pace and the euro weakened on Monday as comments from Italian Deputy Prime Minister Matteo Salvini fuelled concern about a clash with the European Union over Italian budget plans.

During a joint press conference with French far-right leader Marine Le Pen, Salvini dubbed European Commission President Jean-Claude Juncker and Economics Commissioner Pierre Moscovici as enemies of Europe.

That accelerated a selling in Italian bonds, already under pressure from signs of tension between Rome and the European Union over the Italian budget.

Italy’s 10-year bond yield jumped over 20 basis points to 3.626 percent, pushing the gap over German Bund yields to almost 310 bps, its widest in over five years.

The Italian/Spanish yield gap was its widest in over 20 years at 203 bps, while two-year Italian bonds yields soared to a four-month high at 1.656 percent.

The euro weakened across the board as the spike in Italian bond markets rippled over into currencies.

While the single currency fell 0.4 percent against the dollar, its biggest losses were against the Japanese yen and the Swiss franc. It plunged half a percent against the franc , its biggest daily drop in a month.

Italian stocks were trading down 2.3 percent at their lowest level since April 2017, while banking stocks were down 4.1 percent. (Reporting by Dhara Ranasinghe and Saikat Chatterjee, Editing by Abhinav Ramnarayan)

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