Spain's cost of borrowing shot up Thursday to an unsustainably high level as it sold $3.66 billion in bonds to international investors.

Lenders are now demanding that the debt-choked Spanish government promise to pay 7.03 percent interest on 10-year loans. Any level above 7 percent is widely seen as so costly a price that no government can long endure such a burden.

Yields should be 150-200 basis points lower to make it somewhat more sustainable. We shouldn't be surprised that there aren't many people turning up, Marc Ostwald, analyst with Monument Securities, said in a note.

Spanish bank participation in auciton was conspicuously low, the Financial Times reported.