Investors on Wednesday negated months of austerity measures and confidence building, driving the yield on newly-issued Italian bonds to levels not seen since the height of the economic worrying in Italy late last year.

Former European Commissioner Mario Monti, an economist, took over as the head of a technocrat government last November amid fears that Italy could fall victim to the European debt crisis, and he immediately went to work renewing investor confidence in the country's long-term prospects.

Until Wednesday, it appeared to work: bond yields peaked in December before slowly falling over the first months of 2012.

That was reversed Wednesday, when Italy paid 3.97 percent on 6.5 billion euros in 12-month bonds.

Just a month ago, it paid 2.34 percent in a similar sale. Yields jumped on secondary markets as well, with the benchmark 10-year bond trading 0.7 percent higher at 6.22 percent at the close of trading Wednesday, its highest close since Jan. 25 and increasingly close to the 7-percent threshold economists say is unsustainable.

Analysts said investors were spooked by the European Union (EU)'s 100-billion-euro bailout of Spanish banks last week. Spain became the fourth European country after Greece, Ireland, and Portugal to need bailout money in the last year, and it is by far the largest.

"Investors are worried that after what happened in Spain, Italy could be next,"said Jonathan Wilder, an economist with investment bankers Hildebrandt and Ferrar. "Italy has been doing its best to silence those fears, but so far the results have been mixed. Baseline indicators (in Italy) remain worrisome but they are much better than Spain's."

Nicholas Spiro, director of Spiro Sovereign Strategy, said that markets are no longer treating Italy and Spain differently, "which may be a sign that panic has set in."

He said Italy's problems is selling its short-term bonds was a sign that "Italy is bearing the brunt of the fallout from Spain's request for EU assistance."

Monti warned a week ago about the risk of "contagion" for Italy from the problems in Greece and Spain, and just before Wednesday's debt sale he said that Italy was suffering from the judgment of investors "who do not nurture an innate sympathy for our country" -- implying it was prejudice rather than an objective evaluation of the country's fundamental economic health that is weighing Italy down.

That is a message Italian Ministry of Economy officials have labored to make it recent days. "Performance and perception do not always move step in step," a ministry spokesman said Monday.

To be sure, Italy's budget deficit is much smaller than Spain's in relative terms: 3.6 percent of gross domestic product (GDP) for Italy compared to 8.9 percent of GDP for Spain.

But Italy's overall debt is still around 125 percent of GDP, and at 1.9 trillion euros it is big enough that it would probably be impossible to bail the country out if it was needed. Economic growth for Italy remains moribund, and consumer confidence is near all-time lows.

"Italy is doing what is can to improve growth and pay down debt but investors are impatient," Wilder said.

The Monti government says it will not back away from its reform plans, which include tax increases, government belt tightening, a focus on tax compliance, and removing government red tape.

But one problem comes from the fact that political opposition to the reforms is growing and the Monti government's political capital is shrinking as popular support erodes: pollsters report that support for the Monti government has slipped from nearly 80 percent when he first took power to around 40 percent now.

But Monti has support from at least one high-profile corner: on Wednesday German Finance Minister Wolfgang Schaeuble threw his support behind Monti's increasingly unpopular reforms. "If Italy continues along Monti's path there will be no risks," Schaeuble said.