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Euro zone government bond yields jumped to multi-year highs amid expectations that central banks will keep tightening their monetary policy despite recession risks and a new sell-off in British gilts.

Meanwhile, the spread between Italian and German yields widened after the rightist coalition won a clear majority in Sunday’s elections. Italian bond (BTP) prices are also more susceptible to shifts in interest rate expectations, given the country’s vast debt burden.

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Giorgia Meloni looks set to become Italy’s first woman prime minister at the head of its most right-wing government since World War Two.

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“Short-term, if domestic political risks remain relatively subdued, the short-base in BTPs may pressure spreads tighter,” said Erjon Satko, rate strategist at BofA.

“That said, with a number of central banks reiterating a hawkish stance, the higher rates trend globally through terminal rate repricing likely remains the dominating driver,” he added.

European Central Bank President Christine Lagarde on Tuesday repeated the central bank’s most recent message that interest rates will need to rise over the next several policy meetings even as growth slows substantially.

Germany’s 10-year yield hit its highest level since December 2011 at 2.132%, while the 2-year yield rose to its highest since December 2008 at 2.031%.

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The German economy is heading for recession, the Ifo institute said on Monday.

British government bond prices kept plunging, with short-dated yields surging as much as 50 bps as finance minister Kwasi Kwarteng laid out a series of tax cuts on Friday in a bid to boost growth.

Two-year gilt yields hit their highest since September 2008 having surged over a percentage point since Friday, the biggest two-day jump since June 2008.

“Italy’s elections have little to do with today’s spread widening, as markets widely expected the outcome,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors.

“Bond yields across Europe are correlated, and today’s jump in Britain yields is again affecting the euro area,” he added.

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Investors had already priced in a victory of the center-right coalition, and more clarity about the new government’s policy might be needed before any significant change in investors’ stance.

They see limited potential risks of a clash with the European Union in the near term. Meloni, during her campaign, soothed fears by pledging to abide by European Union budget rules and putting away anti-euro rhetoric, which triggered a sharp spread widening after the 2018 election.

Italy’s 10-year bond yield hit its highest since October 2013 at 4.52%, while the spread between Italian and German 10-year yields widened 12 bps to 241 bps.

Markets will watch the choice of finance minister and anticipate a government could be formed by the end of October.

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“We do not expect an immediate push for a major fiscal relaxation, but we do see risks over the medium term that the right’s policy agenda will clash with EU objectives,” Citi analysts said.

Fears of a clash with the EU might arise if right-wing parties push to approve measures they promised voters to reduce taxes and raise pension spending.

Analysts flagged proposals of the center-right manifesto which might put Italy on a collision course with Brussels, including renegotiating the EU Recovery Fund (NGEU), lowering the retirement age, and offering a tax amnesty.

Some of them highlighted that the League took only around 9% of the vote, reducing the likelihood that Matteo Salvini and his politics will be as dominant.

“This is a relative positive for markets given Salvini’s historically inflammatory rhetoric and more pertinently his recent calls for massive fiscal stimulus,” said Andy Mulliner, head of global aggregate strategies at Janus Henderson. (Reporting by Stefano Rebaudo, editing by Alex Richardson, Ed Osmond and Angus MacSwan)