Italy's 10-year government bond yield hit a fresh record low on Tuesday as optimism grew ahead of an online ballot by 5-Star members to approve a coalition deal with the Democratic Party that investors have been betting on for a week.
Members of 5-Star will hold a ballot on the party's internet platform from 0700 to 1600 GMT on Tuesday to decide whether the group should join forces with the PD, its traditional foe. An SWG opinion poll for La7 television channel said 51% off 5-Star supporters backed a tie-up with the PD, while some 69% of PD voters endorsed the idea.
The sovereign's bond yields fell between 3 and 5 basis points, with 10-year yields hitting a fresh record low of 0.924 %. Two-year and five-year yields also hit or were close to fresh lows, trading at -0.26% and 0.33% respectively.
"There is relief coming through that there is no larger objection [from 5-Star]," said Rainer Guntermann, strategist at Commerzbank, referring to the opinion poll. Guntermann added that while most of any potential political good news is now priced in for Italy, bond yields could fall further following the next European Central Bank policy decision on Sept 12.
"If there is a broader package than most market participants expect... Italy would gain more than others," he said. While a 10 bps cut had already been expected, money markets are ramping up bets on a larger cut and a smaller quantitative easing program, moving to price a more than 60% chance of a 20-basis-point cut.
Elsewhere, other European government bond yields were broadly lower as rising Brexit uncertainty fuelled demand for safe-haven assets. Germany's benchmark 10-year bond yields were down 2 bps at -0.72%, touch off an all-time low.
UK 10-year gilt yields fell to a record low of 0.38% on growing political uncertainty. Britain's lawmakers will decide on Tuesday whether to move one step closer to an early election when they vote on the first stage of their plan to block Prime Minister Boris Johnson from pursuing a no-deal Brexit.
Trade uncertainty is also in focus, given a lack of progress by the United States and China in scheduling talks in September. China said on Monday it lodged a complaint against the United States at the World Trade Organization over its import duties. Investors will be keeping an eye on U.S. manufacturing data due later this afternoon.
Austria is scheduled to sell just over 1 billion euros of bonds in what could be a fresh test of investor appetite for negative-yielding bonds.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)