Italian banks weighed on the broader market on Tuesday, despite a bumper Spanish bond auction and news of a fresh injection of liquidity from the Bank of Japan.

Banca Monte dei Paschi has been one of the weaker Italian banks for some time, and its situation took another turn for the worse today. Reports indicate that the bank, commonly regarded as the world's oldest, will be forced to book a loss of at least €220 million on a derivatives restructuring deal struck in 2009.

This comes on the back of a report last week that suggested Monte Paschi failed to disclose losses on derivative transactions entered into in 2008.

Unsurprisingly, Monte Paschi's CDS widened on the news, and are now trading at 425bps (+27). Thanks to the effects of the ECB's commitment to the irreversibility of the euro, the Italian bank's spreads are still more than 400bps tighter than where they were last summer.

The stress tests held in 2012 exposed Monte Paschi as having one of the weakest capital positions in Western Europe, forcing it to request a second state bailout in just over three years.

Its considerable holdings of Italian government bonds have undoubtedly played a part in the bank's predicament, but recent events seem to have shown that its derivative dealings have also made a contribution. Other Italian banks, including Unicredit (290bps, +14) and Intesa Sanpaolo (261bps, +11) - which issued a floating rate note today - widened in sympathy.

Along with disappointing earnings guidance from AAA-rated Johnson & Johnson (30bps, +2), the news from Italy dampened sentiment. The Bank of Japan's shift to a more aggressive monetary policy -unlimited QE, 2% inflation target - while welcome for risk assets, was priced in by the market.

Strong demand for Spain's new 10-year benchmark bond was also shrugged off. The sovereign attracted bids of around €24 billion, according to the economy minister. The €7 billion that was eventually sold - at mid-swaps plus 365bps - is another significant stride towards meeting its large 2013 funding requirement.

A bailout - and a subsequent activation of the ECB's Outright Monetary Transactions programme - now looks further away than ever, though the country's poor economic fundamentals could yet push yields out and change the picture.

Wednesday's market will no doubt be shaped by the US technology sector, with Google, IBM and Texas Instruments all reporting after Tuesday's close.

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