Yields on Italian debt fell sharply overnight as Moody’s left the country’s credit rating above “junk” status, while the nation’s coalition government vowed to stay in the eurozone.

The bond rally cooled off, however, after the Five Star and League parties showed no signs of backing down over their budget, which was criticised by the European Commission last week and dubbed “unprecedented in the history” of the EU.

Italy faces a deadline to formally respond to the bloc’s reprimand by midday.

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