(Bloomberg) -- Italian bonds surged to take yields to the lowest in nearly three months after the nation was said to have reached a technical agreement with European Union officials over its budget.
Yields fell across the curve after a spokeswoman for Rome’s Treasury said the European Commission was expected to ratify an informal deal to avoid sanctions. Italy has dropped its deficit target to 2.04 percent from 2.4 percent in an effort to appease the EU and the deal will be officially announced Wednesday, said the official, who asked not to be named.
“This leaves room for more convergence between Italy and the core-EU markets,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S.
Italian 10-year yields fell 10 basis points to 2.83 percent, the lowest level since Sept. 26, while their spread over Germany dropped 11 basis points to 258 basis points. Two-year yields fell as much as 12 basis points to 0.44 percent.
Italian bonds have undergone a recovery in recent weeks amid signs that the populist coalition would relent in its budget battle with the EU after its initial proposals breached the bloc’s deficit limits. Pressure on the nation has also eased with France projecting a blowout in its deficit to above the 3 percent cap imposed by the EU.
![](https://i-invdn-com.akamaized.net/content/picf33a6644f7df656021c40a9e39fe7d52.png)