LONDON- Italian 10-year bond yields rose to the highest in over eight months on Monday, lifted by unease over the future of the country's economic reforms and a potential slowdown in the pace of the European Central Bank's bond buying stimulus.

Bond markets across the euro bloc stuttered however as investors priced the possibility that economic recovery fuelled by rapid COVID-19 vaccine rollouts could encourage the ECB to slow the pace of its emergency PEPP bond purchases.

Italian government bonds, a big beneficiary of ECB asset purchases, bore the brunt - 10-year yields rose almost 16 basis points last week in the biggest weekly jump in over a year.

That weakness continued on Monday, exacerbated by weekend comments from Matteo Salvini, leader of Italy's right-wing League party, that Prime Minister Mario Draghi will be unable to enact key reforms demanded by the European Union because his unity government is too divided. 

The 10-year yield rose 5 basis points to 1.129%, its highest since September while the gap over benchmark German Bund yields was at 123 bps, the widest since late-2020.

"This (ECB unease)is the underlying concern but there were also comments made by Salvini," said ING senior bond strategist Antoine Bouvet. "Mind you euro zone bonds are all under pressure so there is also a ‘higher EGB (euro zone government bond) beta’ effect, so Italy tends to sell off than its core peers."

Saxo Bank strategist Althea Spinozzi said news Hungary's central bank could soon consider lifting interest rates may have fed unease too. urn:newsml:reuters.com:*:nL5N2N419I

"Peripheral bond yields are so low, they would be the first to re-price if there's concern about ECB tapering or rate hikes," Spinozzi said.

German Bund yields headed back towards last week's almost two-year highs, rising 1.5 bps to -0.11%.

So far, higher bond yields has not caused alarm, possibly as markets and ECB officials see the stronger economic backdrop as justifying a re-pricing. 

Views differ within the ECB board on the future pace of emergency bond purchases, Pictet Wealth Management strategist Frederik Ducrozet noted, adding the ECB "would find it difficult to materially reduce the pace of PEPP purchases at the June meeting".

In other news, the EU has hired banks for a new bond issue, due this week, IFR reported (Reporting by Dhara Ranasinghe; Editing by Kirsten Donovan, Himani Sarkar and Alison Williams) ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))