The spread or difference between German and Spanish 10-year benchmark bond yields hit record levels Monday, reflecting growing concerns over Madrid's efforts to stabilise its strained public finances. As Spain 10-year bond yields - the rate of return earned by holders - jumped sharply to 6.026 percent from 5.851 percent on Friday, the spread with the German bund, considered the safest of investments, widened to 422.5 basis points (4.225 percentage points) at one stage.
Rates above 6.0 percent on long-term bonds normally signal stress in the market as investors demand more in return for their money and Monday's showing was the first time since August that Spanish bonds hit such levels. Significantly, Italian 10-year bonds were also up again, to 6.607 percent, running dangerously close to the cut-off 7.0 percent level as investors took a sceptical view of Rome's efforts to halt the rot under new leader Mario Monti.
Dealers said that after some limited respite with the formation of new governments in Greece, bailed out last year by the EU and International Monetary Fund, and in Italy, the markets are deciding that they prefer the safety of German bonds than to take on any new risk.
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