try the following procedure, see if it gets you what you want. I'm using yahoo mail as well. I'm assuming you're using the new mail interface not the classic inferface.
1). Go to the options where you can make your signature, see following screenshot:
--> Click on show a signature on all outgoing messages and then click on the rich text link, which I have highlighted with a red box.
2). Then you should be able to edit the text like you wanted. There you can do the italicized text, etc, those things you can do in Word to edit how the text looks like. See screenshot below:
Hope this helps, sorry if the images are a little small