Italy markets jump after League’s EU rules vow

ITALY’S markets extended a rally following conciliatory language on the country’s budget plans.

Yields on 10-year bonds dropped the most since June and stocks led regional gains. Italian leaders from the government coalition partner League began discussing the 2019 budget yesterday, and agreed to respect EU deficit rules, according to Ansa, echoing a pledge made earlier by Deputy Prime Minister Matteo Salvini.

“The rally is reflecting the more supportive tone in Salvini’s comments over the past days, in essence that the 2019 deficit will remain within the 3 per cent band,” said Mizuho strategist Antoine Bouvet.

Italy’s 10-year yield dropped 11 basis points to 3.05pc, after falling eight basis points on Monday. The bonds led gains in peripheral euro-area debt and the yield spread with their German counterparts narrowed 12 basis points to 270 basis points.

The rally has encouraged some investors to cover their short positions, with combined open interest on Italian 10-year futures contracts expiring in September and December dropping the most in six months on Monday. The volume of September contracts was about 10pc higher than the 10-day average on Tuesday.

Mr Salvini is targeting a deficit of up to 2pc , while Luigi Di Maio, who leads the Five Star party, has stressed the need to put the people’s interests above investors.