The Italian government has found itself paying a higher price to borrow because of the debt problems of Spain and the threat of Greece leaving the eurozone.
Rome had to pay over six percent interest at its latest auction of 10-year bonds.
A month ago Italy, which has the world’s fourth-largest debts, only had to offer 5.8 percent.
Shorter term bonds – those maturing in five years – saw an even steeper rise in yields.
Despite the generous yields, Italy was not able to sell as many bonds as it wanted.
“We’re seeing Italy being taken hostage by the Spanish concerns. The market does not discriminate anymore,” said Michael Leister, rate strategist at DZ Bank in Frankfurt.
“You either buy periphery as a whole or you sell it. The market isn’t happy with this auction.”
The threat of Greece leaving the eurozone together with Spain’s problems have refuelled wariness of weaker eurozone borrowers among international investors, who are estimated to now hold only about a third of Italy’s total debt.
“The deterioration of peripheral markets appears to be accelerating, which is mainly a function of stress stemming from Spain’s banking sector and the Greek exit risks,” said Peter Chatwell, a strategist with Credit Agricole in London.