Italian government bond yields rose 5-10 basis points yesterday before a eurozone finance ministers' meeting that will discuss Rome's budget plans, while German yields were flat to weaker as investors remained cautious on taking on risk.

Italian debt markets stayed under pressure ahead of the Eurogroup meeting. The ministers will meet to discuss deeper eurozone integration and are expected to address the opinion issued by the commission concerning Italy's draft budgetary plan. Most analysts do not expect market moving developments but markets remain jittery nevertheless. "Italy is going to fall into the background," said Jan von Gerich, fixed income analyst at Nordea. "The Commission won't do anything else but talk tough, and even if they have the balls to bring in sanctions it would be late spring anyway." Two-year Italian bond yields were 12 basis points higher to 1.19 percent, while 10-year bond yields rose five bps. Italy's yield spreads over German counterparts - effectively a measure of Italian risk - widened 8 bps to 292 bps. On Friday the European Banking Authority (EBA) completed its health check of the region's systematically important banks, concluding that none of the 48 lenders failed a major capital threshold. The EBA identified Italy's Banco BPM as one of the banks that fared the worst in its Europe-wide stress test.

The global backdrop also was not conducive to risky securities, as doubts arose about mooted China-U.S. trade talks, world stocks stayed under pressure and investors focused on Tuesday's U.S. mid-term elections and a Fed meeting on Wednesday. That kept yields on 10-year German and U.S. government bonds - seen as safe assets - stayed below the highs touched on Friday when upbeat U.S. jobs figures reinforced bets on more interest rate hikes by the Federal Reserve.

A weak European share market opening after a lossmaking Asian session saw Germany's 10-year government bond yield, the benchmark for the euro area, slipping at open to trade as low as 0.412 percent. But yields inched off session lows as European shares clawed back some losses. However, three sources close to the matter told Reuters that a new round of cheap ECB loans is not imminent, as policy makers see little need to pump more cash into the banking system at a time when lending and inflation are picking up.