Market players have lost confidence in the Italian finance minister's pledges to deliver a sound budget, analysts told CNBC on Tuesday.
There's been a change in market sentiment from late September, when Giovanni Tria, the country's finance chief, presented new deficit figures that were much higher than what he had initially suggested.
"The market lost confidence in Tria after he could not deliver on his promise to have a budget deficit below 2 percent in 2019, instead Di Maio and to a lesser extend Salvini (the two deputy prime ministers) forced Tria to accept a higher budget deficit," Carsten Hesse, European economist at Berenberg told CNBC via email.
On Tuesday, Italian bond yields hit nearly a five-year high as Tria delivered a speech in the Italian parliament. Higher yields tend to point to a higher risk environment. The move in Italian yields was seen despite Tria stating that he wanted a "constructive dialogue" with the EU over the 2019 budget.
Tria also told lawmakers on Tuesday that he does not think the new deficit forecasts are so shocking. The government in Rome raised the 2019 deficit target to 2.4 percent of gross domestic product (GDP) from 0.8 percent.
Prior to the announcement of the new budget targets in the last week of September, yields on Italian bonds moved lower on repeated reassurances from Tria that Italy would stick to European fiscal rules and on reports that he was seeking a deficit figure below 2 percent of GDP.
At the time, the yield on the 10-year government bond stood at about 2.8 percent. On Tuesday morning, the same yield hit 3.7 percent.
"Investors adjusted their understanding of the relative influence of minister Tria following the announcement of a budget deficit of 2.4 percent, with surprisingly optimistic GDP assumption, just days after he had insisted it would be less than 2 percent," Erik Nielsen, chief European economist at UniCredit, told CNBC via email.
"As a result, investors have concluded that budget policies, including the size of the deficit, are set by the two deputy prime ministers, and not by the finance minister. Given the hostile rhetoric towards Europe, this is a concern for most investors," Nielsen added.
Both Luigi di Maio and Matteo Salvini, leaders of the two coalition parties, have exchanged strong words with the European Commission. On Monday, Salvini called European Commission President and economics commissioner the "enemies of Europe."
The European Commission sent a letter to Italy last Friday outlining that the new budget forecasts present a "significant deviation" from European fiscal rules.
The 2019 budget is set to remain a heated topic between Rome and Brussels. The former must submit the final document to the European Commission for analysis by October 15. Brussels will then give its opinion on the policies for the new year by the end of November.