S&P Global on Friday affirmed Italy at BBB, two notches above the line separating investment grade from junk; though the ratings agency did maintain its negative outlook on the euro zone's third largest economy.
Italy's anti-establishment government's confrontational stance on public spending and euro membership had sparked worries last year that the country could eventually lose its investment grade rating.
Such a move would push Italy out of multi-billion dollar bond indices and likely push its spread over Germany out to near unsustainable levels.
"Some in the market were calling for a ratings cut, which is why foreign investors have been quite cautious in the run up to the S&P decision," said Commerzbank rates strategist Christoph Rieger. "But on Friday when the domestic buyers returned there was already quite a bit of a recovery, and we are seeing that extended into today."
Italy's 10-year bond yield was down five basis points to 2.53 percent, while the closely-watched spread over Germany was at 254 bps, its tightest in over a week and well off last week's two-month high of 269 bps.
Safe haven German Bunds sold off, with the benchmark 10-year bond yield rising two basis points to just above zero percent. Other better-rated euro zone government bond yields also edged higher on the day.
It also emerged this weekend that Spanish Prime Minister Pedro Sanchez looks set to regain power after his Socialists overcame a historic challenge by right-wing nationalists in elections on Sunday, a result he portrayed as a morale booster for the European Union.
There was little immediate impact on Spain's bond market, with 10-year bond yields flat at 1.03 percent, though hovering near a two-week low.
"I think markets are still struggling to understand what the vote means, which is why you are not seeing more of a rally," said Rieger.
The Socialists and left-wing populists Podemos are set to fall around 11 seats short of a parliamentary majority, and bridging the gap would require Sanchez to also rely on Basque nationalists and other small parties.
Later in the week, inflation numbers for the euro zone, a Federal Reserve meeting in the United States and business surveys in Italy and Spain could all have an impact on markets.