Italian bond yields fall as Rome prepares to revise controversial budget amid EU pressure

Italy's 10-year bond yield has fallen below three per cent for the first time since September on reports Rome was set to present the EU with a revised budget plan.

Giuseppe Conte is expected to reveal the new budget figures to European Commission President Jean-Claude Juncker later today, sources told Reuters.

The Italian government has been embroiled in an intense standoff with the EU for months over its controversial budget plan.

Brussels rejected the proposals, which contained a deficit target of 2.4 per cent of GDP and a growth forecast at 1.5 per cent and opened disciplinary measures against Italy after officials refused to revise the figures last month.

Italy's 10-year government bond yield dropped below three per cent this morning from highs of 3.68 per cent in October.

Reports also emerged that Deputy Prime Minister Matteo Salvini was considering a snap election early next year.

Salvini later denied the report in daily newspaper La Repubblica.

"The prospects of an early general election that would be expected to lead to a more stable political situation is something that would get positive attention from BTP investors," said DZ Bank strategist Andy Cossor, referring to Italian debt.

Italy’s populist coalition government had come under substantial pressure to revise its budget – with disciplinary measures that could potentially lead to unprecedented fines against an EU member state.

Yesterday Conte said he was working hard to bridge the gap with the EU over Rome's expansionary budget, raising hopes of a resolution to the ongoing tussle.