Italian 10-year government bond yields were down around 28 basis points on the day at 6.95 percent, after rising sharply to above 7 percent in the previous session. The two-year Italian yield slumped 50 basis points to 6.21 percent.

"They're heavily in on Italy and Spain, 2-10 years", one trader said.

The spread between 10-year Italian and German government bond yields narrowed 38 basis points on the day to around 500 basis points, according to Tradeweb. Traders said thin market conditions were exacerbating swings in prices.