Italy could see its borrowing costs rise above those of troubled Spain this week, analysts told CNBC on Monday, with a credit rating downgrade on Friday and continued political deadlock posing an ever larger threat.
"Italy is really going to blow it up this week," Joe Rundle, head of trading at ETX Capitol, told CNBC. "There is the downgrade that happened on Friday but now there is the Italian yield and the spread narrowing to the Spanish yield and there is the possibility that Italy gets more expensive than Spain. The last time we saw that we were in the middle of a euro zone crisis," Rundle told CNBC Europe's "Squawk Box".
Rundle added that while political uncertainty lived on in Italy, there was the potential for Italy to "come unwinding very quickly."
On Sunday, Beppe Grillo's anti-establishment 5-Star Movement reiterated that it wanted to lead Italy's next government rather than form an alliance with any other party.
Grillo's comments followed a credit rating downgrade of Italy by Fitch on Friday. The country was downgraded to BBB plus with a negative outlook. The downgrade was attributed to inconclusive election results in February that have led to a power vacuum and delays to structural reform as no one party gained a majority to form a government.
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As markets opened on Monday, the FTSE MIB was down 0.5 percent. "We could see these gains we've seen in the last few weeks come off very aggressively," Rundle said. "I think the Italian yield is likely to blow up while the Spanish yield falls and Italy becomes the bad boy of Europe more so than Spain now, so that is where I think the risk is this week," he added.