Italian sovereign bond yields yesterday soared above 7.4pc, well above the 7pc threshold that led smaller eurozone neighbours of Greece, Portugal and Ireland to seek bailouts.
Analysts expect Rome will struggle to find buyers for its auction of one-year bills on Thursday morning, but that it will stick to the planned sale as well a sale of up to ?3bn of five-year debt on Monday for fear of spooking investors still further.
"The possibility that the Treasury cancels the auctions tomorrow and Monday is unlikely, because this would be a very negative sign for the market," said Gianluca Ziglio, an interest-rate strategist at UBS in London.
Clearing house LCH Clearnet yesterday demanded more collateral to handle Italian bonds, while the proffered resignation of Silvio Berlusconi, Italy's prime minister, failed to reassure markets amid fears the government will fail to implement austerity measures to stabilise its debt.
Italy's debt stands at ?1.9 trillion or 120pc of its GDP, bigger than the debts of Spain, Portugal and Ireland combined. The government must pay back more than ?300bn of its debt as it matures next year.
The first such bond redemption looms on February 1, when Italy must pay back ?26bn of debt sold 10 years ago. Meanwhile, soaring bond yields signal rising interest payments.
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