[ad_1]
* Italian authorities report deficit target of 2%
* Some analysts question the market recovery
* Last week's Italian auction may have scared the government
By Virginia Furness
LONDON, Nov. 26 (Reuters) – Italian government bond yields briefly dropped 20 to 30 basis points on Monday, after rumors that the Italian government coalition would bend under pressure from the EU. could reduce the budget deficit target for next year.
Italy plans to reduce its deficit target to 2% of gross domestic product in order to avoid a disciplinary procedure on the part of Brussels, government sources told Reuters.
Rome's stalemate over Rome spending, which has lasted for several months, has caused investors to panic about Italian public finances, and the suggestion of a compromise was welcomed by the markets on Monday as investors buy Italian debt .
Italy's 10-year government bond yield fell by more than 22 basis points to a two-month low of 3.17%, while its spread on Germany's higher rating was at its highest level in a month at 279 basis points.
Italy's gap on Germany fell below 300 basis points on Friday, after coming close to its highest level since 2013, at 335 basis points earlier in the week.
Italian Deputy Prime Minister Matteo Salvini on Sunday raised the possibility of modifying the deficit reduction target for next year, which could pave the way for negotiations between Rome and Brussels so that 39, avoid disciplinary action.
Analysts said the pressure to revise the budget was sparked by the weak sale of "BTP Italia" bonds last week, which suggests that domestic investors are losing confidence in Italian assets.
The Bank of Italy warned last week that rising Italian government bond yields were hurting the country's private wealth and financial sector.
The Italian government, the most indebted member of the eurozone, will hold two bond auctions later this week.
"The Italian government should take note of the many difficult messages it received last week, especially from the Italian public and the Banca d'Italia," said Erik Nielsen, chief economist of the group. at UniCredit, about the low participation of BTP Italia.
Other analysts were more cautious about Monday's return to Italian debt and at 10.30 GMT the bonds had erased some of the previous gains. The yield on 10-year bonds decreased by 15 basis points to 3.26%.
Cyril Regnat, Paris-based fixed income strategist at Natixis, said he was surprised both by the change in direction of the apparent change in Rome after Salvini had recently ruled out a change in the budget and by the reaction. of the market.
"The market is overreacting," he said. "To date, we have no support or actual figures (according to reports of the reduction of the budget deficit reduction target)."
He added that a likely fall in Italian economic growth in 2019 would make the probability of reaching a deficit target of 2.2% or 2% "very low".
Italy's short-term government bond yields were down more than 30 basis points to 0.64%, before falling back to 0.78%.
Greek 10-year government bond yields have also been well received and are expected to see their largest single-day decline since September, as the recovery in Italian bonds helped boost support for peripheral assets and the announcement of the merger between the Greek lender Eurobank and Grivalia Properties.
Elsewhere, German government bond yields hit record lows after the United Kingdom and the European Union reached an agreement on exit plans from the UK.
The yield on 10-year German government bonds was up two basis points to 0.36%.
Reporting by Virginia Furness
Additional report by Tommy Wilkes
Edited by Dhara Ranasinghe and Jon Boyle
