2018.05.3021:58:00UTC+00Italian Populist Parties Restart Talks to Establish Government

Italian president Sergio Mattarella has tried to reach a deal between the nation's two biggest populist parties in order to prevent another national election that could threaten to destabilize the country, helping Italian assets to rebound from a sell-off that rattled global financial markets.

Mattarella, who kickstarted this week's crisis by refusing to give mandate two a Eurosceptic finance minister proposed by the two parties, the League and the 5-Star Movement, last Sunday, held unofficial talks with the parties' leaders on Wednesday evening.

While the Italian leader did not manage to clinch an agreement to establish a new coalition, he have both parties more time to reach a deal, prompting former IMF official Carlo Cottarelli, who was tasked by the president to establish an interim technocratic government on Monday, to hold off his plans.

The restart of the coalition talks prompted a rally in Italian bonds and stocks. The yield on the two-year note, most reactive to political developments, fell around 1.15 percentage points to 1.49 percent as prices increased. Milan's FTSE MIB stock market ended up 2.1 percent.

Investors have been worried by the prospect of snap elections, which will be perceived as a referendum on the country's membership in the euro.

Cotarelli's interim government was not expected to secure a parliamentary vote of confidence, which could trigger elections as early as July. But following two meetings on Wednesday, Cottarelli and Mattarella agreed to hold off their plans to see if the talks between Five Star and the League might deliver results , according to people privy to the matter.