LONDON — Spanish 10-year government bond yields broke above 6 percent for the first time this year Monday as concerns over the country’s ability to keep its finances under control pushed debt markets back into “crisis mode,” analysts said.
Spanish 10-year yields were at 6.15 percent early Monday, a rise of 16 basis points, or 16 hundredths of a percentage point, from Friday. Five-year yields topped 5 percent, while two-year yields spiked to 3.70 percent, all 2012 highs.
Six percent is psychologically important for markets because the pace at which yields rise has accelerated on previous occasions when that level was broken. Beyond 7 percent, Greece, Portugal and Ireland struggled to raise cash in the market and were forced to seek financial aid.
Underlining investor fears, the cost of insuring Spanish debt against default hit a record high Monday of $520,000 a year to buy $10 million of protection, according to CMA, a market information firm in London.
Spanish yields were expected to rise further towards the 7 percent level beyond which debt costs are widely seen as unsustainable unless the European Central Bank resumes its bond purchases after a two-month break, analysts said.
Yields on Germany’s benchmark 10-year bond, viewed as the euro zone’s safest debt, hit a record low of 1.628 percent Monday. The previous record was established in November 2011, before the E.C.B. injected around €1 trillion, or $1.3 trillion, of cheap three-year funds into the banking system.
“We’re back in full crisis mode,” Lyn Graham-Taylor, a rate strategist at Rabobank, said.
“It is looking more and more likely that Spain is going to have some form of a bailout,” Mr. Graham-Taylor said, adding that, absent an intervention from the E.C.B., “you would not see a cap on Spanish yields. they would just keep increasing.”
The latest blow to Spanish bond markets followed data Friday that showed record borrowing by Spanish banks from the E.C.B. Investors’ main fear is that banks parked most of the funds in domestic government debt, making them more vulnerable to sovereign stress.
Spain faces a test of investor confidence this week with an auction of two- and 10-year bonds on Thursday.
Speculation the E.C.B. could soon step in to ease the pressure is rife, although investors say they fear the bank’s bond-buying program may have lost some of its potency after the E.C.B. was given preferential treatment in Greece’s debt restructuring.
The E.C.B. seems reluctant to resume bond purchases. A member of the central bank’s governing council, Klaas Knot, said Friday he hoped the bank never had to use the program again.
“The bigger the position the E.C.B. builds in a sovereign’s debt, the greater the private sector holders are likely to perceive their probability of default,” Peter Chatwell, a rate strategist with Credit Agricole, wrote in a note.