Italian borrowing yields soar above 6.0%On financial markets, traders said that this renewed tension on Italian bond yields had pushed down European banking shares and the main stock indices, and had undermined the euro.
Yields on Italian 10-year debt rose above 6.0 percent, a level widely considered unsustainable for Italy and its 1.6 trillion euros of public debt ($2.2 trillion).
In late morning deals, the Italian yields stood at 6.111 percent up from 6.011 percent on Friday and fast nearing the record high of 6.397 percent reached on August 5.
The spread, or difference, between the yield on Italian 10-year sovereign bonds and benchmark German bonds also rose to 400 basis points.
The yield on Spanish 10-year debt rose to 5.600 percent, up sharply from 5.490 percent on Friday.
Concern that the debt crisis could spread beyond Greece, Ireland and Portugal have centered on Italy and Spain, core eurozone countries with big economies. If they were pulled down, the effects would hit the eurozone and also the global economies.
The deal agreed last week was meant to solve the Greek debt crisis once-and-for all and prevent contagion by recapitalising banks, and by reinforcing the 440-billion-euro European rescue fund created at the beginning of the crisis, the European Financial Stability Facility.
"Constant pressure on long-term Italian bond yields despite a rise in share prices (last week) underlines that the sovereign debt crisis is far from over and that markets will still test politicians," analysts at Aurel BGC brokerage said.
"There clearly needs to be a solution to increase the firepower of the EFSF. China and Brazil have been called on to play a key role in the construction of Europe," they added.
The analysts said the G20 summit this week would provide further indication of exactly how last weeks European deal will develop.
Attention will now turn to the European Central Bank, whose new head Mario Draghi said the bank will continue pushing Spain and Italy rates lower by intervening directly on the secondary markets.
Analysts at BNP Paribas said they expected the ECB "to play a more active role as the Italian 10-year rates return to these key levels".
Rates for more financially sold states meanwhile fell. German rates dropped to 2.112 percent and French rates to 3.128 percent.
It is no wonder that the bond vigilantes are at it again....
1st and foremost, Trichet passes the baton to Draghi on Tuesday and the shorts will like to test his mettle.
As an Italian himself will Draghi have his own "inner conflicts" on buying Italian bonds on the secondary mkts after he takes over the ECB leadership ?
Then there is Berlusconi, that percieved weak link in the Italian chain of command; the Itallian ruling elites aka bureaucrats or civil service, are well respected. Will he put his plans into actions or will he filp-flop.