LONDON: Italian bond yields slid on Monday after Prime Minister Matteo Renzi's centre-left Democratic Party triumphed in European parliamentary elections, strengthening his mandate to push for economic reforms.
The yields were set for their biggest one-day fall since October 2013, with Renzi one of the few leaders across Europe to have scored a victory against Eurosceptic nationalists who stunned mainstream parties in France and Britain on Sunday.
Critics of the European Union more than doubled their seats in a continent-wide protest vote against austerity and unemployment but bond investors focused instead on the fact that the majority of seats would be held by parties supporting the European Union.
Renzi's party beat the anti-establishment 5-Star Movement of former comic Beppe Grillo, easing concerns that a poor result by the Democratic Party would weaken Renzi's drive for the swift reforms he promised when he took power.
Italian bonds outperformed most of the market, with 10-year yields dropping 13 basis points (bps) to 3.03 percent, while their Spanish equivalents were 7 bps lower at 2.92 percent. Traders said intra-day moves could be exaggerated by thin volumes, with British and U.S. markets closed for holidays.
"In Italy we've seen voters endorsing the policies of Renzi whose party came out as the strongest party in these elections, and this seems to be taken very positively by the market," said Christian Lenk, a fixed income strategist at DZ Bank.
"We have not seen spectacular outcomes in terms of Eurosceptic parties in the weaker countries except for Greece ... and that seems enough to draw investors back."
Greek 10-year yields were 33 bps down at 6.22 percent , reversing some of last week's rise after the anti-austerity Syriza movement won the vote but failed to deliver a knockout blow against Prime Minister Antonis Samaras's government.
A credit rating upgrade on Friday by Fitch to B from B- with a stable outlook also bolstered sentiment in Greek bonds.
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