Amid concern that the European debt crisis is escalating, Spanish bonds fell - pushing 10-year yields to a record relative to safe-haven German bunds.
Yields later continued the surge higher - to 6.27 percent - after a disappointing auction of Spanish bills. The key level is seen as 7 percent, where other debt-hit countries had to seek financial help from outside groups.
Italian securities also declined as premier-in-waiting Mario Monti faced political resistance in forming a Cabinet for his so-called technocrat government.
The extra yield investors demand to hold French, Belgian and Austrian debt instead of bunds widened to euro-era records after German Chancellor Angela Merkel's party voted to allow euro states to quit the currency area.
"At this stage there's fear," said Achilleas Georgolopoulos, a fixed- income strategist at Lloyds Bank Corporate Markets in London. "You have the same disbelief about Italian politics and that's apparent in Italian spreads widening today. Spain is following." .......read on
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