Government bonds

Spanish 10-year bond yields have shot above the 'unsustainable' 7% mark, ahead of a crunch meeting between European finance ministers this afternoon.

Yields on 10-year Spanish government bonds are close to unaffordable, Spanish Prime Minister Mariano Rajoy has told his parliament ahead of this week's all-important EU summit.

Henderson Global Investors' bond fund manager John Pattullo said the current crisis in Spain will result in Spanish bank bondholders taking severe haircuts, after a similar scenario in Ireland last year.

Spanish government bond yields have shot through the danger level of 7% as fears grow its debt could soon be rated as junk.

The yield on Spanish government debt is racing higher this afternoon despite the move by the European authorities to spend €100bn bailing out the country's banking system.

Asian markets fell more than 1% in some regions overnight, with the wider area set for its biggest monthly drop since the financial crisis of 2008.

The European Commission is considering offering Spain direct aid from the eurozone rescue fund to recapitalise distressed banks, as the country's government bond yields approach record highs.

The spread between safe haven bond yields and those of peripheral European nations has widened as fears grow over the weakness of the Spanish banking sector.

SOVEREIGN DEBT

The global credit market has been turned upside down as sovereigns contaminate the market and governments become "the new hedge funds", according to PIMCO's Luke Spajic.