Pressure on Italy as election threatens
Italian government bond yields rose sharply on Tuesday, lifting southern European peers, as the possibility of an early Italian election increased with the country's largest anti-establishment parties polling strongly.
President Sergio Mattarella called on Monday for Italy's bickering parties to rally behind a "neutral government", but Italy's two largest parties, the far-right League and anti-establishment 5-Star Movement, rapidly came out against the proposal.
This raises the likelihood of an unprecedented immediate return to the polls, even as early as July.
Italy has one of the highest debt-to-GDP ratios in Europe at 132pc.
The closely watched Italy/Germany 10-year government bond yield spread hit its widest level in more than three weeks at around 132 basis points .
Italy's 10-year bond yield shot up 10 bps to a six-week high at 1.867pc and was set for its biggest daily jump since early January.
Milan's FTSE MIB index fell 1.8pc, with Italian banks taking a strong hit and set for their worst day in two months.
Yields in broader eurozone bond markets were also higher as strong German data soothed concerns over the eurozone's largest economy and increased expectations the ECB will withdraw stimulus as planned.
In London, dealmaking dominated activity in stocks, with gains in Shire and Virgin Money, although the FTSE 100 index held steady after a public holiday and ended flat.
M&A did prompt sizeable moves among individual stocks, with Shire up 4.6pc, after Japan's Takeda agreed to buy the rare disease specialist.