* Spanish debt insurance costs near record high
* German 10-year yields hit record low
* French bond yields under pressure before presidential vote
By Emelia Sithole-Matarise
LONDON, April 20 Spanish 10-year yields broke
back above 6 percent on Friday, driving German Bund prices to
record highs, as investors worried about Madrid's ability to
deal with its fiscal problems and a potential spread of the euro
zone debt crisis.
The cost of insuring Spanish against default also rose close
to a record, with pressure on Spain unrelenting after a debt
auction on Thursday fell short of market expectations. A
sustained break of 6 percent in 10-year yields could see
borrowing costs accelerate to unaffordable levels.
The latest flare-up in the euro zone debt crisis threatened
to spread to Italy, where 10-year yields were last up 8 basis
points at 5.70 percent. France's presidential
elections on Sunday were adding to market jitters, setting up a
challenging environment for Italian debt sales next week.
"You have this longer-running story in Spain and the
elections this weekend in France. It is very much a risk-off
tone. Fears of contagion are showing up in Italy," a trader
French bonds sold off in an increasingly nervous market in
the last trading session before Sunday's first round of the
presidential election. Ten-year yields were up 3
bps at 3.13 percent, with French five-year credit default swaps
up 10 bps at 210, their highest since January.
Financial markets are concerned that the expected eventual
winner, Socialist Francois Hollande, may be les stringent with
g o vernment finances than current President Nicolas Sarkozy.
The deteriorating sentiment in peripheral bonds supported
demand for safe havens, hoisting German Bund futures to
a record high of 140.86. Bunds later retreated as data showed
German business sentiment improved in April.
German 10-year yields were last at 1.62 percent
, off a 1.59 percent all time low plumbed earlier.
"The context of the fragility on the economic side,...the
political situation with the election in France means risky
assets are under pressure," BNP Paribas strategist Patrick Jacq
"Flight-to-quality trades remain so I would not be surprised
to see slightly lower yields across the board in Germany as well
as widening spreads."
Other German yields are also near record lows, according to
Reuters data, with German 30-year Bunds yielding 2.38 percent.
The al-time low is 2.337 percent, hit on Jan. 13.
Germany will test investor appetite for its ultra-long bonds
next week when it auctions 3 billion euro of 32-year paper.
German inflation stands at 2.1 percent.