Italy borrowed 8.5 billion euros ($10.7 billion) in six month bills on Tuesday but was forced to pay investors a much higher rate of return, the Bank of Italy announced.
In trading under pressure from concerns about the Spanish banking system, the yield on the bonds rose to 2.104 percent from 1.772 percent in the previous auction on April 26.
However the rate of return is still way below the yield of more than six percent which Italy was forced to pay in November 2011 when the markets feared that country would become another victim of the eurozone debt crisis.
Demand was solid with bids of more than 13.6 billion euros.
European debt markets have been rattled by concerns over the health of Spain’s banking sector, with yields on Spanish and Italian government bonds rising.
Bankia, one of Spain’s biggest banks, was forced to ask for a 19-billion-euro government bailout last week.
Italy, which has seen the rate of return it must offer investors to borrow funds on the rise since April, plans to return to the markets on Wednesday with issues of medium- and long-term debt.