Italy had to pay approximately 6.5 per cent to auction off 10.6 billion six month bills. Just a month ago the rate for the same bills was 3.535 per cent. Investors are concerned that Italy will simply not be able to finance its debt. If the interest rate continues climbing in this manner that will be a self-fulfilling prophecy!
Two year bonds yielded even a higher rate at 7.83 per cent. In reaction to these signs of increased investor concerns the Euro currency also declined in terms of the U.S. dollar.
Stocks in Italy's FTSEMIB index also fell, particularly banks. The Italian prime minister Mario Monti plans additional austerity measures to cut the Italian debt. Next week Italy will be testing the market again in an attempt to raise 8.8 billion Euros and will include four different bond issues. Rather than Italy testing the market it would be better to say that the market will be testing Italy! For much more see this Bloomberg article.