(Bloomberg) -- Italian bonds climbed after a report that Deputy Prime Minister Matteo Salvini may be open to revisions on a budget criticized by the European Union.

Ten-year bond yields headed for the biggest drop this month and the euro rose after La Stampa newspaper reported Salvini may be willing to lower spending. The European Commission is due to publish its assessment of the budget at 11 a.m. London time, with a rejection potentially leading to fines for the country.

Italy’s 10-year bond yields fell 12 basis points to 3.50 percent, having touched 3.72 percent Tuesday, the highest level since Oct. 19. The spread over those on their German peers narrowed to 313 basis points.

“If the comments from Salvini are true and some sort of compromise is found, sanctions may even be avoided, which would make it likely indeed that the BTP-bund spread retightens back to the 250-275 area,” said Martin van Vliet, senior interest-rate strategist at ING Groep NV.

The euro extended an advance to gain 0.3 percent to $1.1400, as its correlation with Italian bond moves increased. Italy’s FTSE MIB Index rose 1 percent, snapping five days of losses.

If the EU follows through with sanctions, it could levy fines of 0.2 percent of Italy’s gross domestic product, which could increase to 0.5 percent if the government in Rome doesn’t amend its budget.

--With assistance from Richard Bravo.

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Scott Hamilton

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