CORRECTED - UPDATE 1-Euro zone bond yield spreads widen to record levels
(Corrects prices in last paragraph and second last paragraph to show CDS for some euro zone sovereigns widened)
* Bond yield spreads within euro zone widen to record levels
* Ratings warnings boost demand for German government bonds
* Falling shares prop up broader bond market, ECB eyed
(Updates with market prices, context, quotes, background)
LONDON, Jan 13 (Reuters) - The premium that most euro zone government bonds offer over German Bunds soared on Tuesday to the highest since at least 1999 following warnings on the credit rating outlook for three euro zone countries.
Standard & Poor said on Friday and Monday that Spain, Greece and Ireland's ratings were under threat as the global crisis strains public finances -- sparking concern that others, such as Portugal and Belgium, may be under fire next.
With euro zone governments needing to raise hundreds of billions of euros to fund stimulus plans, and new government paper worth 20 billion euros ($26.81 billion) on offer this week alone, investors took refuge in more liquid German debt.
Ten-year Portuguese, French, Belgian, Greek, Spanish and Dutch bonds yielded the most over Bunds since at least 1999, when the euro was created, according to Reuters charts.
"The main issue is the announcement by S&P that Spain was going to be downgraded. That led to a sharp widening of spreads versus Germany in the 10-year sector," said Nick Stamenkovic, fixed income strategist at RIA Capital Markets. "Peripheral markets are under pressure and, in an environment where investors lack risk appetite, Bunds are the safest choice."
The 10-year Portuguese/Bund yield spread hit 109 basis points, Greek/Bund spreads blew out to 243 basis points, the Belgian/Bund spread widened to 93.6 basis points and even the spread between French and German bonds -- which had been wiped out only a few years ago -- was at 58.4 basis points.
Finland, once regarded as the euro zone country with the healthiest government balance sheet, found its bond yields offering a record premium of 77 basis points over Bunds.
The Dutch spread also hit its widest, at 70 basis points -- just before the Netherlands sold 3.275 billion euros of new 2.5 percent January 2012 bonds, near the top of a 2.5-3.5 billion euro target.
Strategists at Calyon said the potential for further warnings by S&P within the euro zone was "less obvious" but they did not rule out similar announcements by ratings agency Moody's. Continued...
