[ad_1]
* Bond yields on the periphery of the euro area tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, November 22 (Reuters) – Italy's bond yields rose on Thursday, easing some of last night's sharp drops, after Italy's deputy prime minister, Matteo Salvini, said the country would not come back on its expansionary budget for 2019.
Loan costs elsewhere in the block have all declined, and holidays in the United States for Thanksgiving Day have minimized trade.
Italy remained concentrated one day after the European Commission took the first step towards disciplining its country against its budget after Rome refused to change it, a move that could eventually lead to fines.
On Thursday, Salvini, also head of the ruling party, the ruling party, reaffirmed that the government would respect its budget plans for 2019, which, according to Brussels, would violate EU rules.
While Italian bond yields have come under increasing pressure, analysts have said that signs of trade-offs should help limit sales.
La Repubblica said Thursday that Italian President Sergio Mattarella wants Prime Minister Giuseppe Conte to reach an agreement with the European Union.
The report adds that the country's two deputy prime ministers do not want to negotiate with the EU budget, while Il Messaggero said the league was willing to amend the budget law.
The Commissioner for the Economy of the European Union, Pierre Moscovici, told an Italian newspaper that it was "imperative" to dialogue with Italy on the budget.
"We need to see if a compromise can be found, but the hope is there," said Orlando Green, European fixed income strategist at Crédit Agricole.
After falling 14 basis points on Wednesday from its biggest one-day drop since early September, the yield on Italian 10-year bonds rose 3 basis points Thursday to 3.51%.
The spread against German Bund yields widened to 315 basis points, but remained below the monthly peaks of the month at 335 basis points.
Analysts said the Italian bond rally on Wednesday may also reflect a hedge of short positions when a highly anticipated event – the EU's response to the re-presented budget – has passed as expected.
Antoine Bouvet, Mizuho's rate strategist, said that the Commission's action had opened a new, quieter phase for the Italian-German bond spread.
"On the one hand, the recommendation to reopen the excessive deficit procedure (EDP) for Italy was widely expected. Secondly, it was not the worst case scenario for construction, because quicker action could have been taken, "he said.
"Third, the measures taken yesterday involve a long process that should be completed by 2019."
Focus turned to French and Spanish suppliers as well as the minutes of the October meeting of the European Central Bank.
Analysts said they would look for any sign that the central bank is considering a new round of multi-year cheap loans to banks in order to support the euro zone's economy. (Report by Dhara Ranasinghe, edited by John Stonestreet)
