Italy was forced to pay investors higher rates to raise 6.5 billion euros in an auction of medium- and long-term bonds on Wednesday, but not as much as feared.
Just two days after an inconclusive election result rekindled fears about whether Italy would keep to deficit-cutting policies, the treasury raised 4 billion euros in 10-year bonds at a rate of 4.83 percent against 4.17 percent in the previous auction on January 30.
Dow Jones Newswires said it was the highest rate paid at a bond auction since October.
"Whilst the interest payable is significantly higher than in recent auctions as a result of the blurred political picture, fears of a 5 percent-plus figure proved unfounded," said CMC Markets trader Matt Basi.
Italy also raised 2.5 billion euros in 4-year bonds at 3.59 percent against 2.94 percent on January 30.
Demand surpassed supply by 1.65 times for the 10-year bonds and 1.6 times for four-year bonds.
Leftist leader Pier Luigi Bersani on Tuesday admitted he had failed to win parliament -- without a majority in the Senate -- and warned that the country was in a "dramatic situation".
The Italian business daily Il Sole 24 Ore said Wednesday that it did not exclude the yield on 10-year bonds rising above the psychological 5.0 percent level given the tension on the markets following the inconclusive result of the election.
On Tuesday, the yields on Italian government 10-year bonds jumped on the secondary market to 4.897 percent -- the highest rate in three months -- from 4.490 percent on Monday as investors demanded better returns to risk holding Italian debt.
They dipped to 4.84 percent in Wednesday trading on the secondary market.