Italian yield sinks after Salvini election failure, German Bund yield down

• The incumbent Democratic Party (PD) governor had won 51.4pc of the vote compared to 43.7pc for the League's candidate.
• The 10-year yield in Italy sunk to 1.061pc, its lowest since Nov. 1, and was last down 17 basis points on the day.
• The benchmark 10-year Bund yield declined to an eight-week low of -0.35pc and was last down 1 bps.

LONDON: The Italian 10-year yield fell to a three-month low Monday after right-wing leader Matteo Salvini failed in his bid to overturn decades of leftist rule in the northern region of Emilia-Romagna on Sunday, bringing relief to the national government.

The yield on the safe-haven German Bund also fell to its lowest in weeks on the back of growing concern that China's coronavirus is more of a threat than anticipated.

So far, from the more than 2,750 infected globally, the virus has killed 81 people in China, which accounts for 98pc of the cases worldwide. But it has spread already to other countries including the United States, Australia and France.

The virus has caused alarm because it is still too early to know how risky it is and how easily it spreads between people. Also because it is new, humans have not been able to build immunity to it.

"The spreading 'coronary angst' leaves scope for the safety bid to extend," said Rainer Gunterman, a rates strategist at Commerzbank.

"With the macro backdrop still looking inconclusive and the flow pattern improving, setbacks in Bunds should remain better buying opportunities," Gunterman said.

Salvini had campaigned relentlessly in Emilia-Romagna since the start of the year, seeking a shock victory that he hoped would bring down the national coalition government.

But with nearly all the ballots counted, the incumbent Democratic Party (PD) governor had won 51.4pc of the vote compared to 43.7pc for the League's candidate.

"The PD victory should afford BTPs a small relief-rally, but as long as political uncertainty lingers, they will fail to fulfil their tightening potential," said Antoine Bouvet, senior rates strategist at ING.

The 10-year yield in Italy sunk to 1.061pc, its lowest since Nov. 1, and was last down 17 basis points on the day.

The benchmark 10-year Bund yield declined to an eight-week low of -0.35pc and was last down 1 bps.

The spread between German and Italian 10-year government bond yield shrank to its tightest since Oct. 28.

Yields across other European nation also fell by 1 bps. The 10-year French and Dutch government bond yield both touched three-month lows, and so did the Belgium and Spanish ones.

In other news, Fitch Ratings on Friday upgraded Greece's credit rating to 'BB' from 'BB-', saying that GDP growth and fiscal prudence were leading to government debt remaining at sustainable levels.

The 10-year Greek government bond yield was down 1.2 bps at 1.31pc, having fallen to a three-month low of 1.304pc.