EURO PANIC spread to Germany as investors shunned a bund issue yesterday, sending a shudder through debt, stock and currency markets.
Contagion hit France too, which was warned by credit rating agency Fitch that it might need more fiscal austerity to keep its triple-A rating.
Spanish and Italian bond yields soared to near-unsustainable levels again as their new governments failed to inspire market confidence.
In Britain, the FTSE 100 lost 1.3 per cent to close down for the eighth day in a row, its longest losing streak since 2003.
Although Germany is usually viewed as the government with the most stable finances, investors only bought €3.889bn (£3.35bn) of the €6bn in 10-year bunds on offer.
The disastrous sale shook confidence in Germany, and yields on its 10-year bunds rose 22 basis points to 2.15 per cent yesterday.
Germany’s DAX stock market fell 1.44 per cent on what economists described as the “spectacular failure” of the bund sale, and France’s CAC slumped 1.68 per cent. The euro took a hit, sliding against the dollar.
Analysts say they have not seen demand for bunds so low “in living memory”, and this is the worst auction ever in the six-year history of bond sales made public by the country’s finance agency.
“What the German auction results tell us is that the even the most ‘solid’ triple-A rated sovereign debt is looking less attractive at current yields with the threats of contagion and to euro area stability still unresolved,” said analyst Stephen Gallo from Schneider FX.
“The German debt market and banking system are the last ‘pressure points’ in the system for market participants to hit in an effort to drive policy makers towards decisive steps to rescue the single currency.”
Worries over the low demand for bonds pushed yields on 10-year bonds up to 6.71 per cent for Spain and 6.99 per cent for Italy, dangerously near the crucial seven per cent mark at which Portugal, Ireland and Greece all needed bailouts.
French yields jumped as Fitch warned its triple-A rating would be “at risk” if “a further intensification of the Eurozone crisis resulted in a much sharper economic downturn”.