Spanish bond yields hit record highs after costly Italian auction

Spanish yields hit euro-era record highs in the secondary market after an auction of Italian debt saw Spain's euro-zone partner's borrowing costs soar.

The Italian Treasury was obliged to sell six-month paper at 6.5 percent, double the rate at the previous auction, and 7.8 percent for two-year bonds, four times the previous rate.

For the first time since 1997, prior to the establishment of the euro zone, the yield on the Spanish two-year bond in the secondary market moved above 6 percent. The five-year bond traded as high as 6.45 percent, while the three-year bond hit 6.295 percent.

The spike in yields took place despite reports by market players that the European Central Bank was back in the market again buying Italian and Spanish bonds.

However, Spain's risk premium was steady at around 443 basis points as the yield on the German benchmark 10-year government bond hit 2.28 percent after the poor response to the German debt auction earlier this week.

The Spanish benchmark Ibex 35 recovered from earlier losses on Friday to close up 0.54 percent at 7,763.50 points.