Italy’s borrowing rates shot up to a new high yesterday, breaking through the seven per cent warning threshold at a bond sale closely watched by investors worried that the country may need a bailout.

The rates on bonds with shorter maturities were higher than on longer maturities, an inversion of the normal rise of a yield curve.

The Italian Treasury raised €7.5 billion with bonds set to expire in 2014, 2020 and 2022, but fell short of the target of €8.billion. The yield on bonds maturing in 2014 shot up to 7.89 per cent from 4.93 per cent and rates on those expiring in 2022 rose to 7.56 per cent compared to 6.06 per cent at the last similar operation. Interest on bonds expiring in 2020 rose from 5.47 per cent to 7.28 per cent.

Rates this high are considered unsustainable in the long term for Italy, which is struggling to reduce an unwieldy debt mountain of €1,900 billion – around 120 per cent of its Gross Domestic Product.

The head of the International Monetary Fund, Christine Lagarde, said Monday that the fund had not received any request for help from Italy amid rumours of a bailout of up to €600 billion for the ailing economy.

An inversion of yields means that the usual relationship of longer time for a loan meaning higher risk has been reversed and is a sign of distortion in risk-return relationships.