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.