LONDON/MILAN: Italy’s government bond yields rose on Friday after local media reported on tensions within the coalition government and a newspaper interview with a lawmaker raised more concerns about Rome’s commitment to the euro.

The Italian government has reached a deal on who should take charge of state lender Cassa Depositi e Prestiti (CDP), a government source said on Friday, ending weeks of tension over the sensitive appointments.

Meanwhile, Deputy Prime Minister Luigi Di Maio denied newspaper reports that he had demanded Economy Minister Giovanni Tria resign unless he backed government nominees to head certain important companies.

But the latest developments appeared to have no significant impact on bond markets, with Italian bond yields still higher on the day, though stock markets did recover some of their losses.

“It has been said that the finance minister is a counterbalance to the eurosceptic side of the government, and this story shows it’s the deputy prime ministers calling the shots,” said ING senior rates strategist Benjamin Schroeder. “That means there is less conviction going forward that the finance minister will be able to rein in these two on issues such as the budget, and that’s what’s driving this volatility.”

Several newspapers reported earlier on Friday that the two deputy prime ministers had issued an ultimatum to Tria over backing the government’s nominees for key company posts.

Di Maio’s denial bought some brief relief, although both bond and stocks remained weaker. Worries about the government’s position on euro membership also weighed on market sentiment.

According to a report in Italian daily Corriere della Sera, the head of the budget committee in Italy’s lower house of parliament, Claudio Borghi, said the country would come out of the euro sooner or later.

Italy’s two-year bond yield was up eight basis points at 0.64 percent, set for its biggest one-day rise in two weeks. Ten-year bond yields were 8.5 bps higher at 2.59 percent - pushing the gap over German Bund yields to 222 bps from around 218 bps late Thursday.

“The fact that Tria is entering on a collision course with the two leaders of Italy’s government forces has put (investors) on alert,” said Marco Vailati, head of research and investments at Cassa Lombarda.

“A resignation would obviously be traumatic. The market reaction is logical, even though (the sell-off) could be seen as a buying opportunity should the whole thing turn out to be a journalistic exaggeration,” he added. As Italian bonds sold off, the Italian FTSE MIB equity index fell 0.5 percent, underperforming the European market, before recovering some of the losses. It was set to close the day down 0.2 percent.—AFP