By Mark DeCambre, MarketWatch , Sunny Oh

Italian 10-year government bond yields retreated from their multiyear high on Friday as a key European Union official sought to play down tensions with Rome over the government's budget plan.

Yields for 10-year Italian debt fell 9.9 basis points to 3.571%, after touching a fresh four-year high of 3.777%. Conversely, yields for the 10-year German bond , known as the bunds, were at 0.439%. Investors tend to turn to German bonds as a haven during periods of heightened uncertainty in the eurozone because the country is the largest in that economic bloc. Bond prices rise as yields fall, and vice versa.

The spread between German and Italian bond yields, which can serve as a gauge of investor unease, stands at 3.12 percentage points after earlier hitting 3.39 percentage points, representing the widest in about five years, according to Tradeweb data.

Italian government bonds rallied after Pierre Moscovici, European commissioner for economic and financial affairs, said he wanted to reduce tensions with Italy over its budget plan. Moscovici said he wanted to "reduce tensions and maintain a constructive dialogue" with Italian authorities, according to Reuters (https://uk.reuters.com/article/uk-italy-budget-moscovici/eus-moscovici-says-wants-to-reduce-tensions-with-italy-idUKKCN1MT25C).

But some investors were less sanguine about Moscovici's remarks, framing them as part of the budget wrangling that will go on between Rome and Brussels.

"The EU is trying verbally to placate Italy, but Italy is not going to back down from its budget demands," said Mark Grant, chief global strategist at the investment bank B. Riley FBR Inc.

Earlier in the week, Italy's government approved a draft budget law for next year, confirming a set of expansionary measures that could lead to a fast-rising deficit and putting country's officials on a collision course with EU representatives.

The planned draft law targets a budget deficit of 2.4% of gross domestic product. EU officials fear the actual deficit could be much higher than 2.4%, especially if economic growth does not improve as much as assumed in the budget's projections.

The full draft budget law will be submitted to the Italian parliament by Saturday.

Meanwhile, the 10-year U.S. Treasury note yield rose 2.5 basis points to 3.20%, near its seven-year closing high of 3.227%, while the 30-year bond yield picked up 2.3 basis points to 3.381%, approaching its four-year high of 3.401%. The short-dated 2-year Treasury note yield rose 2.6 basis points to 2.900%, close to a decadelong high.

The yield climb was stoked by a rebound in U.S. stocks and Italian bonds as investors appetite for risk assets jumped at the expense of haven assets like risk-free government paper. The Dow Jones Industrial Average , S&P 500 and Nasdaq were all up by more than 0.6% on Friday.

On the data front, existing home sales ran at an annual rate of 5.15 million in September (http://www.marketwatch.com/story/existing-home-sales-slump-to-a-near-3-year-low-as-buyers-back-out-2018-10-19), marking a 3.4% decline from August. Housing and other rate-sensitive sectors have struggled under the burden of elevated bond yields.

Looking ahead, a number of Federal Reserve speakers are on deck. Atlanta Fed President Raphael Bostic is due to talk at 12 p.m. in armchair discussion in Macon, Ga., while Dallas Fed President Robert Kaplan will participate in a Q&A in New York at the Princeton Club.

(END) Dow Jones Newswires

October 19, 2018 11:50 ET (15:50 GMT)