Spanish-German Yield Spread Hits Record High As Crisis Escalates

German government bond yields hit fresh lows and Spanish yields held near peaks Tuesday on indication that Spain would recapitalize nationalized lender Bankia, which asked for €19 billion ($23.8 billion) Friday, by issuing new bonds.

The 10-year German bund yield fell as much as 2 basis points, touching a new low of 1.345 percent. The 10-year Spanish bond yield traded above 6.4 percent Tuesday, and a level above 6 percent has raised questions about the sustainability of borrowing from markets in the longer term. The premium investors require to hold Spanish government bonds over German counterparts hit a euro-era high at 505 basis points.

Spain's bank-rescue fund has €5 billion in cash and a €19 billion injection would mean that Spain's ability to bail out Bankia, the country's third-largest bank by assets, depends on the Treasury's access to markets.