Italy's one-year borrowing costs doubled at a sale of short-term bills on Wednesday, mirroring fresh doubts about weaker eurozone countries and highlighting market nerves ahead of a more challenging auction of three-year bonds on Thursday.
Rome paid 2.84 percent to sell one-year debt, up from 1.405 percent at the previous auction in mid-March, reaching the highest level since December.
Contagion fears from neighboring Spain's budget troubles and the slow progress of much-needed structural reforms have halted a falling trend for Italy's debt costs.
The authorities were quick to point to factors beyond Italy's shores.
"Even though demand was strong, as had been expected, the result of the auction reflected increased tensions on sovereign bonds in the euro area that resulted in a significant increase in yields," the central bank said in a statement.
Italy's industry minister said the rise in borrowing costs was not a reaction to the government's planned labor reforms.
The Treasury raised the planned 11 billion euros in 12- and three-month bills, with bids totaling 1.6 times the amount on offer. It will offer up to 5 billion euros on Thursday, including its March 2015 BTP bond and three off-the-run issues and yields are expected to rise there too.
One-year yields had been declining since mid-November when they hit a euro lifetime record of 6 percent.
Last month they touched their lowest level since August 2010 at auction as massive injections of emergency funding into banks by the European Central Bank encouraged them to buy Italian and Spanish bonds.
"The auctions went well as far a demand is concerned though higher yields are not a positive sign," said RBS strategist Biagio Lapolla.
"What's weighing on the markets it's not so much domestic factors as fears about Spain and poor data on global growth. A slowing global economy is a threat to austerity-hit eurozone economies."
The cost of insuring Italian debt against default rose after the debt sale but on the secondary market, Italian and Spanish yields fell after days of rising sharply.
Spanish risk premiums have leapt since Prime Minister Mariano Rajoy defied Europe last month by unilaterally easing Madrid's 2012 deficit target.
They have dragged Italian borrowing costs higher in their wake.
But Italy also has problems of its own - an economy in recession and resistance from political parties and unions to a labor reform on which the Rome government is banking to spur growth.
Italian newspapers reported the government was monitoring the situation, which it blamed on external factors, and ruled out at present further budget measures troubles.
"Italy's is much more prepared and organized" than it was last year, Italian Industry Minister Corrado Passera said.
The austerity push of Prime Minister Mario Monti has helped Italy rebuild its credibility on financial markets but it adds to the woes of an economy seen contracting by at least 1.2 percent this year.
Investors' attention is increasingly turning to economic fundamentals as the ECB-fuelled rally in Italian and Spanish bonds seen early this year has fizzled out.
"We were never out of the woods and we won't be until the economy turns around," an Italian bond trader said.
With a healthier banking system and a lowly indebted private sector, Italy is seen on a sounder footing than Spain but its large refinancing needs expose it to worsening funding conditions for the eurozone periphery.
The yield premium Italian 10-year bonds pay over safer German Bunds rose above 400 basis points on Tuesday, for the first time since early February. It fell on Wednesday to stand at 380 basis points after the auction.
This key measure of risk perception had tightened to around 280 basis points last month. It still remains more than 150 basis points below euro era peaks hit in November when fears about Italy's 1.9 trillion euro debt precipitated a change of government.
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