After going up as high as 7.108 per cent, Spain's 10-year government bond yield finished at 7.06 per cent.
The rise to the 7 per cent level is regarded as unsustainable by many economists and this comes ahead of a summit by eurozone finance ministers.
The yield particularly on the 10-year bonds is taken as a primary indicator of how much interest rate the Spanish government would need to pay to borrow money. Economists agree that in the long term, the 7 per cent interest rate will make it really difficult for Spain to raise money on the bond markets.
Officials in Spain are expecting that the meeting between Europe's finance ministers on Tuesday will result to a decision that will proceed with the bailout for cash-strapped Spanish banks reportedly at €100 billion ($124 billion). However, there are some concerns from investors on the possibility of bailing out Spain's public finances, which they think is way too big to handle. Spain's economy is the fourth biggest inside the eurozone and is even larger than the combined economies of Greece, Portugal and Ireland.
The creeping up of Spanish as well as Italian bond yields is a stark contrast to the rates of German and French short-term bonds during Monday's auction.
German six-month bonds yields are at a record low -0.03 per cent, which means that investors pay the German government for holding their bonds. Yields for French short-term bonds also reached negative for the first time on Monday.
Both German and French debt are considered by investors as safe haven for their money given the uncertainty elsewhere within the eurozone.
Spain's fiscal woes are manifested in a draft document that was leaked ahead of Tuesday's summit where it is suggested that Spain change its target for the 2012 budget to 6.3 per cent of GDP.
Germany's finance minister stated that the euro zone officials are working to create a framework that will pave the way for the bailout for Spanish banks. However, there is still a need to create a new regional banking supervisory agency that will allow individual banks to get financial aid directly from the region's two bailout vehicles.
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