Spain's cost of borrowing soared to more than 5.9 percent on Tuesday as doubt spread among bond investors that Europe's fifth-biggest economy will be able to service its expanding debt.
Meanwhile, the head of its central bank warned that Spain could need more capital if the economy continues its decline due to recession. The Spanish economy is expected to contract by at least 1.7 percent this year.
Yields on Spain's 10-year notes in the secondary market reached their highest level -- 5.95 percent -- since Dec. 12, Bloomberg News reported.
Economists generally regard a 6 percent yield on 10-year debt as the limit of sustainability. Once Greece, for example, passed that point it required two massive financial rescues from its European Union partners and the International Monetary Fund.
In contrast, Germany's 10-year notes, known as bunds, fell to 1.684 percent, and U.S. Treasurys fell to 2.04 percent late Monday.
The head of Spain's central bank, Miguel Angel Fernandez Ordonez, said Tuesday that his country's commercial banks might need more capital if the economy "worsens more than expected."
Spain's government, meanwhile, promised to push through an unpopular plan to cut spending by $40.11 billion -- a figured that was raised Monday from $27 billion. The revision means Spain's ratio of budgetary debt to gross domestic product has fallen to 5.3 percent. Last year the debt-to-GDP ratio was 8.5 percent.
"We need a sustainable health care system," Finance Minister Luis de Guindos told the Wall Street Journal. "That implies cuts."