Italy has been allowed to backtrack because the European Central Bank bought Italian bonds before an austerity package had been agreed, Nick Firoozye, head of European rates strategy at Nomura told CNBC Tuesday.
"If the ECB intervened in the event of an actual austerity package being passed, we would likely see some recovery in spreads but right now they are just holding the fort," he said.
"This is just one step forward in the ongoing likely volatility, we will see more volatility and spread-widening through the course of the month," he added.
He said although technically the ECB cannot run out of ammunition, the right thing to do would have have been to insist austerity measures were implemented first.
Bank of Italy governor Mario Draghi, who is set to succeed Jean-Claude Trichet as President of the ECB, has stated that the ECB's bond buying is a temporary measure.
Mohamed El-Erian, co-CEO of PIMCO told CNBC earlier in the week that the ECB's purchase of Italian bonds on the secondary market had succeeded in keeping yields at or below the 5 percent level for the "old" Italian ten-year benchmark bond.
Italian bond yields were hovering around the 5.6 percent mark Tuesday as market worries over the country's ability to pass the austerity measures through its Senate persist.
They were nevertheless below the crucial 6 percent mark reached before the ECB's intervention.
El-Erian claims the jury is still out on whether the ECB "allowed" the yields to rise as a way of putting pressure on the Italian authorities to get their act together or that the ECB itself is "overwhelmed" by market dynamics.
Italy is braced for a general strike as the Italian Senate debates the 45.5 billion euros austerity package on Tuesday.
Firoozye added that the EFSF—the European Financial Stability Facility, a fund of 440 billion euros ($635 billion) used to bail out struggling euro zone economies—is being challenged in Germany which could have serious repercussions for the euro zone region as a whole.
"There is an important challenge taking place in Germany with the constitutional court decision on Wednesday which is likely to award the Bundestag more power and more say in all EU relations.
As a pre-emption to this, the Merkel government is giving the Bundestag more say in how the EFSF is deployed," he said.