LONDON: Italian government bond yields dipped on Monday as an Asian stock rally pointed to improving risk sentiment globally, and with investors expecting a political crisis in Rome to be resolved in coming weeks.
Asian shares rallied on Monday and US stock futures recouped early losses as newly empowered retail investors turned their attention to precious metals, promising a respite for some hard-hit hedge funds.
This saw Italian debt -- which has recently taken a hit on worries over a potential new election -- recover some of its losses.
"We don't have a definite conclusion to the crisis, but the market is relatively optimistic and the improvement in global risk sentiment has given people the excuse or reason to get back into Italian bonds," said ING rates strategist Antoine Bouvet.
"That said, the risk is still hanging over our heads," he added.
Italian bond yields dipped 2-3 basis points across the curve, with benchmark 10-year borrowing costs dropping 3 bps to 0.616%.
The Italy-Germany 10-year bond yield spread, seen as a gauge of risk sentiment in the single currency bloc, tightened 2.5 bps to 113 bps.
Prime Minister Guiseppe Conte handed in his resignation last week in a bid to form a new majority in parliament and avoid fresh elections.
The risk remains that his bid may prove unsuccessful, with news emerging this weekend that Matteo Renzi, who triggered the crisis this month by pulling his Italia Viva party out of the ruling coalition, would like to see former European Central Bank chief Mario Draghi become prime minister.
German Bund yields, the benchmark for the euro zone, remained anchored around -0.51% on Monday, tracking US Treasury yields that also remained unchanged.
Potential news around a $1.9 billion stimulus plan in the United States could impact bond yields later in the session, analysts said.