Greece's government debt is back in the spotlight, and investors are looking for the exit.

As the four-day rout in Greek bonds sent yields to the highest since January, the selloff started to infect nations from Ireland to Portugal and even larger countries such as France. In Spain, a debt auction fell short of the government's maximum target, and European stocks extended their longest losing streak since 2003. Only German bunds were sheltered from the slump, with demand for the safest assets pushing their yields to a record low.

“We are in a typical flight-to-quality environment with substantial losses in stock markets and wider spreads,” said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. “The Spanish auction suffered from the environment, not from domestic reasons. It's the market environment which is not favorable.”

Greece's 10-year yield jumped 109 basis points, or 1.09 percentage point, to 8.94 percent at 12:46 p.m. London time, the biggest increase since July 2012. The rate touched 8.995 percent, the highest since Jan. 30. The 2 percent bond due in February 2024 declined 5.46, or 54.60 euros per 1,000-euro ($1,276) face amount, to 65.325.

Germany's 10-year yield fell one basis point to 0.75 percent and reached 0.715 percent, the lowest since Bloomberg started collecting the data in 1989.

Spain sold a combined 3.2 billion euros of bonds due in October 2024 and October 2028, versus a target of as much as 3.5 billion euros. The Madrid-based Treasury allotted 2.2 billion euros of the 10-year securities at an average yield of 2.196 percent. That compares with a record-low auction yield of 2.075 percent at a previous sale on Oct. 2.

Spain's 10-year yield climbed 14 basis points to 2.15 percent, the biggest daily increase since May 15. The rate on equivalent Italian bonds jumped 19 basis points to 2.62 percent and touched 2.74 percent, the highest level since Aug. 13.

Even France, whose 10-year yields dropped to a record-low 1.112 percent yesterday, was not immune to the selloff. The rate on French bonds due in November 2024 increased 10 basis points to 1.23 percent.

Greek Reforms

It's five years since a change in government in Greece set in motion the debt crisis by unveiling a budget deficit that was larger than previously reported by its predecessor. The country was eventually granted a 240 billion-euro lifeline that has kept it afloat since 2010.

Greece's 10-year yield climbed to a record 44.21 percent in March 2012.

Markets slid this week after euro-area finance ministers clashed with the nation's leaders over their plan to leave their safety net, sparking concern that Greece won't be able to finance itself at sustainable rates without the support of its regional partners. The lack of supervision may lead to the country backtracking on reforms agreed with the European Union and the International Monetary Fund.

“Whether that's a bellwether for more problems to come or not, I'm doubtful of, but we certainly saw the periphery sell off,” Andrew Wilson, Goldman Sachs Asset Management's chief executive officer for Europe, the Middle East and Africa, said in an interview with Bloomberg Television's “On The Move” with Jonathan Ferro, referring to the slump in Greek bonds yesterday. “It was a flight to quality, it was a bit of a scary story for a while there, and I think that's all it's reflecting.”

Greek bonds have lost 17 percent in the past month, cutting their return this year through yesterday to 9.9 percent, Bloomberg World Bond Indexes show.

Trading of Greek government debt through the electronic secondary securities market, or HDAT, was 199 million euros yesterday, the highest since Sept. 24, ANA reported. Monthly trading volumes plunged to zero in October 2011 from a peak of 136 billion euros in September 2004.

The Stoxx Europe 600 Index of shares, which has retreated 7.9 percent since Oct. 6 when the IMF cut its global-growth forecasts, dropped for a ninth day and reached the lowest level since September 2013. U.S. stock index futures and Asian shares also fell.

German bunds advanced as a European Union report confirmed that euro-area consumer prices rose at the slowest pace in five years last month, adding to evidence that the economic outlook has darkened and increasing pressure on the European Central Bank to expand stimulus. U.S. Treasuries also gained, pushing 10-year yields below 2 percent.

Volatility on Irish bonds was the highest in the euro area today, followed by those of Portugal and Greece, according to measures of 10-year debt, the yield spread between two- and 10- year securities and credit-default swaps.

Ireland's 10-year yield increased 23 basis points to 1.93 percent and the rate on equivalent Portuguese bonds jumped 42 basis points to 3.70 percent.

Instant Insights /

Europe's Bond Markets Hurting

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