The sell-off in Italian bonds deepened, with the yield on two-year debt breaking through the 2% barrier. The yield on the bond is set for its biggest one-day jump in 26 years.
Movements in bond prices are important as they affect the cost of borrowing for the government. Italy's debt currently stands at 130% of its economic output.
European financial markets have been hit by political upheaval in Italy. The prospect of elections as early as September, along with the possibility of eurosceptic parties strengthening their position, has hit markets. Italy's benchmark FTSE MIB sank 2.7%.
The UK's FTSE was down 1.2%, Germany's Dax down 1.3%, and France's Cac down 2%.
The bond sell-off hit the share price of Italian banks exposed to government debt, with Intesa Sanpaolo, BPER Banca, Unicredit and UBI Banca falling sharply.
The bond sell-off hit the share price of Italian banks exposed to government debt, with Intesa Sanpaolo, BPER Banca, Unicredit and UBI Banca falling sharply.
Meanwhile, the pan-European Stoxx 600 fell 1.6%, with banks the worst-performing shares, and the euro fell against the dollar and pound.
