Italy's three-year borrowing costs rose to their highest since December on Wednesday after Fitch cut its credit rating last week, but the country also managed to sell the top planned amount of a new 15-year bond.
The Treasury paid a yield of 2.48 percent to sell 3.3 billion euros ($4.3 billion) of three-year bonds, a big jump from 2.30 percent at a similar sale one month ago.
The cost of three-year money had also risen sharply at the Feb. 13 auction, which preceded an election that produced no clear result and has left Italy in a political stalemate that threatens to slow reforms needed to spur growth and cut debt.
The Treasury also sold 2 billion euros of a 15-year bond it first issued in January, paying a yield of 4.90 percent compared with 4.81 percent at the initial sale, which was managed by a syndicate of banks.
Demand was weaker than analysts had expected, with bids of 1.28 times the offer amount for both the BTP bonds, and Italian debt yields on the secondary market rose following the sale.
Italy's one-year borrowing costs had also climbed to their highest level since December at an auction on Tuesday.
The Treasury nevertheless shifted almost all the debt it wanted to sell, aided by the European Central Bank's as-yet untested pledge to buy bonds of struggling euro zone countries that ask for help. Yields on Italian bonds and those of other indebted euro states such as Spain have fallen from near historic highs since ECB chief Mario Draghi said in July the central bank would do "whatever it takes" to save the euro.
"Without the ECB's pledge to backstop euro zone peripheral debt markets, post-election instability in Italy would have sent yields surging by now," said Nicholas Spiro, managing director at Spiro Sovereign Strategy.
"However, the strains are showing on Italy's government bond market, with a further uptick in yields at today's auction and fairly lacklustre demand at that."
Italian 10-year yields were last 9 basis points higher at 4.69 percent, slightly up from levels seen before the auction.
Rome also sold two floating-rate CCTue notes on Wednesday, bringing the total raised at the auction to 7 billion, just below the maximum planned amount of 7.25 billion euros.
Rating agency Fitch cut Italy to BBB , just three notches above 'junk' status last Friday, and assigned a negative outlook, citing political uncertainty after the inconclusive election, a deep recession and the country's rising debt.
Parliament convenes on March 15 and President Giorgio Napolitano will hold consultations with leaders of all the parties to see if a government can be formed. If it cannot, the country may face fresh elections within a few months.