Bonds: Investors moves back into Gilts, rally in Italian BTPs cut short

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 3.19% (+0bp)

UK: 1.53% (-5bp)

Germany: 0.45% (-1bp)

France: 0.82% (-2bp)

Spain: 1.70% (-4bp)

Italy: 3.49% (+1bp)

Portugal: 2.01% (-1bp)

Greece: 4.33% (-2bp)

Japan: 0.15% (+1bp)

Gilts found a bid on the back of weakness in Sterling after a backbench revolt fell just marginally short of the threshhold necessary to trigger a leadership contest.

MPs had demanded that May appear before the 1922 Committee on Wednesday night with unrest growing amongst the Tories after reports last week the PM is considering an extension to the transition period. There were reports that 46 Tory MPs have sent letters of no confidence to the chairman of the influential committee, just short of the 48 needed to trigger a leadership contest.

Outside of the UK, all eyes were on Italy after ratings agency Moody's granted the country what in effect was a stay of execution on having its sovereign debt relegated to the category - literally - of 'junk' in the not too distant future.

The decision, announced after the close of markets on Friday, triggered a sharp rally in Italian BTPs.

Buying extended into Monday, with the yield on the 10-year BTP hitting an intraday low of 3.30%, but by the of the session those gains had evaporated.

Earlier, the country's Premier, Giuseppe Conte, had responded to Brussels's queries around the assumptions underlying its budget plans out to 2020, arguing that a higher deficit was needed to help the poorest Italians.

Significantly, perhaps, Conte did say that Rome was willing to modify its plans - if needed - in order to stay within the new budget targets.

Conte also said he was willing to sit down with Brussels to talk if the European Commission rejected Rome's budget plans.

The EC was expected to respond the next day.

On a more negative note, also on Friday, the Italian central bank announced a further slowdown in the country's GDP, to a quarter-on-quarter pace of 0.1%, versus a 0.2% clip over the preceding three months.

According to Banco D'Italia, the impact of the 2019 budget would hinge on the savers' and investors' confidence in the government's commitment to steadying the country's public finances.

In the background meanwhile, speaking at a rally in Rome on Monday, the founder of the Five Star movement, Beppe Grillo, called for the power's of the Italian president to be "curtailed", ANSA reported.

Deputy prime minister Luigi di Maio reportedly retorted that such a move had not been agreed in the so-called "contract for government".