Global markets were shaken Tuesday by a deepening political crisis in Italy.

Italian bonds sold off sharply, while demand for safer havens like US Treasurys and German bunds is rising.

Stocks across the world also taking a hammering, with US stocks falling, following major losses in Europe earlier in the day.

A deepening political crisis in the eurozone's third-largest economy, Italy, is wreaking havoc in global markets Tuesday as assets across the board take a pounding on fears of renewed turmoil in the single-currency area.

Italian government bonds — known as BTPs — are the most obvious casualty of the political uncertainty, selling off sharply as investors look to move their money away from the troubled nation and into safer assets. The benchmark 10-year BTP has seen its yield increase 12% to 3.008% on Tuesday. That's a high not seen since 2014.

Bond yields move inversely to prices, so yields increase during sell-offs as investors are offered more return for the extra risk they are taking on.

Yields on Italy's two-year debt rose by almost 50 basis points overnight — the biggest one-day move since 2012, at the height of the eurozone crisis. They have continued to rise and by just before 11 a.m. ET were at 2.316%, their highest level since 2013.

Outside Italy, US Treasurys — the world's deepest and most liquid bond market — have seen yields drop sharply as investors look to put their money somewhere a little safer. The benchmark US 10-year yield is down to about 2.87%.

Safe-haven European bonds are also seeing yields tumble, with the 10-year German bund down 12% to 0.3%.

Bond markets are not the only place where there is big negative action, with stocks also taking a pounding on Tuesday. The major European exchanges all fell more than 1%, while Italy's FTSE MIB was almost 3% lower. Those losses then spread into the US markets, with the big three indexes also nursing substantial falls, as of midday ET.

The S&P 500 was down 0.9%, and the Dow Jones lost 1%.

Of particular note is the European banking sector, where lenders are getting hammered. The Euro Stoxx banking index fell 4%, with numerous individual banks seeing major losses.

Here's the scoreboard:

US banks have followed their European counterparts losses, with Goldman Sachs down 3.1%, and JPMorgan down 3.8% in late morning trade.

The euro has also suffered as a result of the uncertainty on Tuesday, losing more than 0.5% against the dollar by early-afternoon trade in Europe. The euro is down almost 4% versus the dollar this year.

Markets do tend to be highly sensitive to euro-exit-related developments, so some of Tuesday's moves may be a knee-jerk reaction, but it certainly feels as if a crisis is brewing both politically and economically.

Analysts at the Australian investment bank Macquarie, however, urged calm for the time being.

"While we see near term market pressure, we do not think that events today are sufficient to derail the economic recovery (activity has been desensitised to political shocks in the past decade), suggesting that markets will soon present a buying opportunity," a team led by Ric Deverell wrote.

Deverell and co. were clear, however, that things could escalate. "A victory for the populist parties in a new election, while far from assured, could trigger a substantial risk-off event," they wrote.