* Conte will step down in an attempt to form a new government
* German 10-year yield fell to -0.561% in early trading
* US Treasury yields hit a three-week low
* Barriers to US stimulus plans worry stock markets (.)
LONDON, Jan 26 (Reuters) – Italian government bond yields fell across a curve on Tuesday as the prime minister will try to form a new government, fueling hopes of a return to political stability in the Southern European country.
Italian Prime Minister Giuseppe Conte will hand over his resignation to the head of state on Tuesday, Conte’s office said, in the hope that President Sergio Mattarella will give him the mandate to form a new government.
“If Conte manages to form a new government within a week with a stable majority, then the potential for tightening the spread is significant,” said ING interest rate strategist Antoine Bouvet. “But at the moment it is still a political gamble,” he added.
Italian government bond yields fell 2-4 basis points across the curve, with the benchmark 10-year yield dropping 3.5 bps to 0.646%.
The difference in the closely watched Italian-German bond yields was five basis points today at 114.5 bps.
While the resignations allowed elections to be avoided in Italy, a combination of political concerns and stock market jitters over US fiscal stimulus increased demand for safe havens such as the German Bunds.
Asian stocks fell on Tuesday, retreating from record highs as lingering concerns about a potential impediment to the Biden government’s $ 1.9 trillion stimulus weighed on sentiment.
The yield on German 10-year government bonds fell to a two-week low at the start of trading on Tuesday, although they again rose slightly to -0.54% at 1100 GMT, up one basis point on the day.
German Bund demand also came as the yield on the 10-year US Treasury fell to a three-week low of 1.028% earlier in the session as the US Senate pushed to pass the COVID-19 bill.
Later in this session, the EU is likely to finalize the sale of its benchmark seven-year bond and knock on outstanding 2050 debt through syndication. (Reporting by Abhinav Ramnarayan, editing by Karin Strohecker and Angus MacSwan)