Yields on Italian benchmark bonds edged closer to those of Spain's as investors, still nervous about the inconclusive outcome of February's general election, digested weak economic data and last week's rating downgrade by Fitch. Italian 10-year bonds were trading up 4 basis points at 4.64 per cent, while equivalent Spanish bonds were flat at 4.76 per cent - leaving the spread between the two benchmark yields at its narrowest point in nearly a year. The yield on Italy's five year bonds briefly rose above those of Spain's on Monday. Italy's economy shrank 2.8 per cent in the fourth quarter compared with the same period a year earlier, according to the latest data from the Italian statistics institute. Alberto Gallo, head of European macro credit research at RBS, said that while the downgrade by Fitch was expected by the market, there were other reasons for investors to be cautious about Italy. As well as the uncertainty over the outcome of the elections, growth was negative last quarter, bad loans have risen and deposit outflows from Italian banks are up. All these things together create a picture of gridlock in the economy that could last for months. He said while it was true that the European Central Bank's pledge to backstop the euro was still in place, investors were "maybe being simplistic and over optimistic" on the ECB's ability to act over Italy and Spain. Italy's political leaders have been in talks after February's elections failed to leave any one party with enough power to govern alone. Italian credit default swaps - which measure the cost of insuring against default - have been trading above those of Spanish CDS for the past couple of weeks. Rome is due to auction up to €5.5bn of government debt on Wednesday.