Global stock markets stampeded south Wednesday after the bond market signaled that Europe's third-largest economy can no longer survive without a rescue.

The possible consequences for the Eurozone and its trading partners of an Italian default hammered global stock markets and the euro, while supercharging the dollar and lifting German government bonds.

By midday Wednesday, the yield on Italian 10-year bonds had surged to 7.46 percent -- even with the European Central Bank buying those bonds to keep the interest rate down.

No developed nation whose cost of borrowing 10-year notes exceeds seven percent has ever survived without an external rescuer. Once the yield on government bonds from Portugal, Ireland and Greece passed seven percent, they had to be bailed out by Eurozone neighbors.

Italy, however, is vastly larger than those nations and its debt of $2.6 trillion -- more debt than Ireland, Portugal and Spain combined -- is far too big for any Eurozone entity to cover.

That, plus the political paralysis and uncertainty both in Rome and Italy, each of which has a lame-duck head-of-state, sent investors hunting cover.

The instability of Italy's political situation could increase market anxiety levels before rates got even close to double digits, and at 7 percent or 8 percent Italy could find it was unable to raise sufficient money on the bond market, Laurence Boone, European economist at Bank of America Merrill Lynch, told the Wall Street Journal. In short, a confidence issue could turn into a liquidity issue.

The dollar soared 1.6 percent against a basket of major currencies, the euro fell 1.7 percent against the greenback and the spread between Italian bonds and German bonds hit a Eurozone-era high.

The major European bourses plunged from 2 percent to 2.6 percent. In the U.S. the Dow Jones Industrial Average dropped more than 300 points, or 2.5 percent, the Nasdaq Composite tumbled 2.8 percent and the S&P 500 fell 2.7 percent.

The yield on the 10-year U.S. Treasury dropped to 1.96. Bond yields move inversely to their price, so a falling interest rate indicates a rising price or increasing demand.

Gold, a traditional safe-haven, hovered near its Tuesday closing price.

The parallels between the situations in Italy and Greece are uncanny in both the timelines as well as the market's response -- with the notable exception of the outright size of the Italian sovereign debt market, Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, said in a note to clients, according to Reuters.