Slovenian bonds now have a lower spread on German benchmark bonds than Italian papers; the yields on Spanish bonds were below 6% early this week but have been approaching those of Slovenia's bonds.

The yield on Slovenian bonds had been hovering above 7% for a week, with analysts citing fears about Slovenia's ability to implement reforms considering it will not have a fully functioning government for at least two months.

A yield of 7% is considered a psychological limit for treasury bonds beyond which borrowing becomes unsustainable.

However, Sibil Svilan, the head of the state-owned SID development and export bank, recently said that the borrowing sustainability limit for Slovenia actually lies at 5.8%.

Bond yields on financial markets are an indication of the interest the state would have to pay for future bond issues and do not affect the state's liabilities for outstanding bonds.

Slovenia issued two bonds earlier this year, a 10-year bond with a coupon rate of 4.375% in January and a 15-year bond with a 5.125% coupon rate in March.

The government insists there will be no need for new issues next year despite a looming budget deficit.