UPDATE 1-Italian yields rise on Carige's woes, budget deadline
* Italian yields edge higher as Banca Carige preps cash call
* Italy defiant before Tuesday deadline for revised budget
* German bond yields hit new lows on Italy, Brexit uncertainties
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds detail on Banca Carige, industrial output data)
By Abhinav Ramnarayan
LONDON, Nov 12 (Reuters) - Italy’s government bond yields inched up on Monday as a deadline to resubmit the country’s budget to the European Commission approached and fears grew about the future of Italian bank Carige.
Data showing Italian industrial output fell less than expected in September helped limit a rise in yields, while uncertainty in Italy and Britain boosted demand for safe-haven German bonds.
Italian industrial output fell by 0.2 percent in September from the month before, less than expected, after a 1.7 percent monthly jump in August. A Reuters survey of 10 analysts had forecast a 0.7 percent fall in September.
The data was seen as an indicator of the state of the country’s economy before Tuesday’s deadline for it to submit a revised budget to the European Union.
“It’s becoming increasingly clear that whatever concession the Italian government might offer, it will fall short of the mark the Commission wants to see,” said Mizuho strategist Antoine Bouvet.
It also emerged on Monday that Italy’s Banca Carige is set to announce a share issue worth up to 400 million euros to repay a convertible bond it needs to issue to quickly raise funds, a source familiar with the matter said.
Rising Italian yields have hurt the country’s lenders in recent times, as many of them have large holdings of Italian government bonds.
Italian 10-year bond yields were a basis point higher at 3.41 percent on Monday and heading towards last week’s 10-day high of 3.461 percent.
The closely-watched spread over German Bunds widened to 303 basis points and five-year credit default swaps on Italian government bonds rose to a two-week high .
Short-dated Italian debt yields rose by about 2.5 bps, though these are still relatively small moves in the context of recent volatility.
Italy has been in a showdown with Brussels over its spending plans for the coming years and last week Economy Minister Giovanni Tria said the country will stand by the main pillars of its fiscal plan despite the EU’s request to revise it.
Against this background, the demand for safe assets remained strong.
The yield on 10-year German Bunds, seen as one of the safest and most liquid assets in the world, dropped to its lowest in almost two weeks at 0.382 percent, having on Friday slid the most in seven weeks on souring risk sentiment.
The euro was also hurt by the uncertainty, falling to its lowest since June 2017 at $1.124, down 0.7 percent on the day.
Uncertainty over a Brexit deal between Britain and the EU also fuelled demand for safer assets, hitting sterling.
Last week, Jo Johnson, the younger brother of former Foreign Secretary Boris, resigned from Prime Minister Theresa May’s government over her “delusional” Brexit plans and called for another referendum on Britain’s EU membership. (Reporting by Abhinav Ramnarayan; Editing by Kirsten Donovan, Larry King)
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