Foreign investors have cut their holdings of Italian government bonds and bills by more than a quarter since June last year, reducing their exposure to the lowest level since early 2005, central bank data showed yesterday.

Appetite for Italian debt has decreased as the euro zone’s third-largest economy has become sucked into the sovereign debt crisis and the drop in foreigners’ exposure places yet more of the burden of funding government borrowing on domestic players.

Foreigners held €596.8 billion of Italian government debt in April, compared with €668.8 billion in March and €827 billion in June 2011, according to the latest data from the Bank of Italy. The share of Italian public debt held by foreigners was 36.5 per cent in April compared to nearly 41 per cent a month earlier and more than 50 per cent in June 2011.

But those figures include Italian bonds bought by the European Central Bank last year to lower Italian borrowing costs, meaning the actual share of Italian debt held by foreign investors is even lower, analysts said.