Italy takes a battering on bonds

Italy's new prime minister Mario Monti was on the wrong end of a bond market mauling today as he geared up for the task of pulling Europe's third-biggest economy out of the mire.

The embattled nation raised 3 billion (£2.6 billion) today but was charged an eye-watering 6.29% to borrow for five years, a 14-year high.

The cost of Italy's benchmark 10-year debt spiralled past the 7% danger mark last week but stood at to 6.51% today, as markets took some reassurance from the toppling of Silvio Berlusconi and emergency bond buying from the European Central Bank.

Monti takes up the reins of power faced with the monumental job of turning around Italy's debt-laden and uncompetitive economy. He has pledged to carry out the task "with a great sense of responsibility and service toward this nation" but has to win a confidence vote in Parliament before he can lead.

Barclays Capital analyst Nick Verdi said: "It will take time for the reforms to be implemented, and for their beneficial impact on growth and debt dynamics to become visible.

"In the meantime, investors will be confronted with mainly unsettling news, as fiscal consolidation tends to be associated with weak economic activity. For this reason, we believe it is essential that the ECB continues to support Italian debt in the secondary market as Italy faces heavy bond redemption over the next few months."