A few days ago, it was a "disastrous" bond sale in Germany that roiled the markets in Europe. Now Italy has had an "awful" debt sale that shows the country's long term prospects to fund its debts to be on an unsustainable course.
Italy paid a record 6.5 percent to borrow money over six months on Friday and its longer-term funding costs soared far above levels seen as sustainable for public finances, raising the pressure on Rome's new emergency government.
The auction yield on the six-month paper almost doubled compared to a month earlier, capping a week in which a German bond auction came close to failing and the leaders of Germany, France and Italy failed to make progress on crisis resolution measures.
Though Italy managed to raise the full planned amount of 10 billion euros, weakening demand and the highest borrowing costs since it joined the euro frightened investors, pushing Italian stocks lower and bond yields to record highs on the secondary market.
Yields on two-year BTP bonds soared to more than 8 percent in response, a euro lifetime high, despite reported purchases by the European Central Bank.
In a sign of intense market stress, it now costs more to borrow for two years than 10 on the secondary market and borrowing costs for whatever term are above the 7 percent threshold, over which Italy is likely to need outside help if they do not subside.
"The pricing is awful," said Padhraic Garvey, rate strategist with Dutch bank ING in Amsterdam. "The object of the exercise this morning was to get the job done and they've done that, but that's about the only positive thing to say."
The crunch may come next spring:
Since being thrust to the fore of the euro zone crisis in July, Italy has always managed to attract sufficient demand at its auctions.
But record high yields threaten Rome's planned gross issuance of 440 billion euros for 2012 as interest payments on the country's 1.9 trillion euro debt pile rise.
Analysts say that, at current yield levels, the euro zone third-largest economy risks losing market access as redemptions totaling a massive 150 billion euros for the February-April period approach.
That doesn't give the new government of Prime Minister Monti much time. Nor does it give France and Germany a lot of time to come to an agreement about the central bank and its ability to buy the bonds of EU members in trouble. Theoretically, if Italy gets stuck next spring and is not able to sell its bonds, the ECB could step in and avoid problems.
But Germany is becoming more wary of the risks involved and doesn't want to be left holding the bag if things go south. So, the EU will limp along and hope that when the crisis comes, they can deal with it.
Not much to go on but it's all they have.