Euro weakens and Spanish yields soar as Europe crisis intensifies

The euro weakened this morning as the cost of insuring French bonds climbed to a record, Spanish yields rose and european equities retreated for a second day.

The euro depreciated 0.5% to $1.3564 at 10:25am in London while French, Belgian and Spanish 10-year yields climbed to euro-era records relative to benchmark German bunds, according to Bloomberg.

At the latest auction, Spain sold 3.16bn euros ($4.3bn) of 12-month and 18-month bills, compared with a maximum target of 3.5bn euros, the Bank of Spain said.

The yield on Spain's 10-year bond rose 17 basis points to 6.28% and the two-year yield climbed 23bps to 5.22%. The average yield on the country's 12-month debt was 5.022% at auction, compared with 3.608% when securities of the same maturity were sold on 18 October. Yields on the 18-month bills were 5.159%, up from 3.80% last month.

The extra yield investors demand to hold French 10-year bonds instead of German bunds increased to 182 basis points; the most since the common European currency was started in 1999.

Meanwhile, the Spanish-German spread widened to a euro-lifetime high of 453bps, with the Belgian-German 10-year gap reaching 300bps for the first time since Bloomberg began collecting the data in 1993.

The cost of insuring European debt also soared to record highs with credit default swaps on French bonds up three bps to 217, contracts on Italy jumping 15 bps to 577 and Spain climbing seven bps to 464.

Equity markets were also hit with the Stoxx Europe 600 index down 0.8%, led by banks and insurers, while the DAX fell 2.10% to 5859.38. France's Cac 40 had fallen 1.94% to 3048.60 just after 11am.