Spanish borrowing costs soar: 10-year hits 7%

The 10-year yield rose as high as 7.017%, according to Tradeweb. That’s the highest level for Spain’s 10-year since the euro was created in 1999.

The 7% mark makes investors nervous because it’s typically been the first warning sign that a bailout may be needed.

Portugal, Ireland and Greece moved much higher before that happened but it still unsettles investors. Of course, Italy’s 10-year yield breached 7% back in January but has since backed off that level to hover around 6.2%.

Italy auctioned € 3 billion 3-year bonds at an average yield of 5.3% — significantly higher than the prior 3-year auction, which yielded 3.91%.

Geithner: Europe will hold it togethern-spain-bailout.cnnmoney.47

Italy also auctioned € 873 million of 10-year bonds at 6.13%, and €627 million of 15-year bonds at 6.1%. Both were well above the 5.3% and 5.2% yields seen at last month’s debt sales.

Still, Spain has taken center stage in Europe’s ongoing debt crisis. Late Wednesday, rating agency Moody’s downgraded Spain by three notches to just above junk status, citing concerns about debt load and access to financial markets.

Spain’s request for a bailout for its banking sector has undermined the credibility of its government debt, helping drive up bond yields, said Joseph Tatusko, analyst and chief investment officer for Westport Resources in Connecticut.

Last week, Spain asked for €100 billion from the European Union to provide a buffer for its ailing banks.

Earlier this week, Fitch downgraded the credit rating of 18 Spanish banks, citing the weak economy and the banks’ exposure to bad real estate loans. That came one day after the agency cut its rating on the nation’s two largest banks, Santander (STD) and BBVA (BBVA). And last week, Fitch cut its rating on Spanish government debt to one step above junk status.

All eyes will be turned to Greece this weekend, which is having a do-over election after failing to forma coalition government last month. If the election fails to yield a clear winner, it will likely heighten worries about a “Grexit.”

Euro crisis: It’s far from over

European and Asian markets were under pressure Thursday. London’s FTSE 100 (UKX) and the DAX (DAX) in Frankfurt fell 0.9% in midday trading and the CAC 40 (CAC40) in Paris fell 0.4%.

Meanwhile, the Hang Seng (HSI) in Hong Kong closed down 1.2%, while the Nikkei (N225) slid 0.2%. The Shanghai Composite (SHCOMP) shed 1%.

U.S. stock futures pointed to a flat open, with the Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures nudged lower.

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