The interest rate on Spain's benchmark 10-year bonds soared above 6.0 percent on Wednesday, a borrowing rate widely believed to be unsustainable for the crisis-hit Spanish government.
Shortly after mid-day yields on the secondary market were 6.028 percent, up sharply from 5.817 at Tuesday's close, as investors worried over the possible fallout of the crisis in Greece where anti-austerity parties made huge gains in general elections on Sunday.
The yield on Germany's benchmark bonds meanwhile fell to a record low level of 1.521 percent.
"The extreme fragility of the political landscape in Greece and the increasing likelihood that the next loan installment from Europe and the IMF will be blocked means risk aversion will dominate the markets," BNP Paribas analysts said in a note.
Investors are flocking to the safety of German sovereign debt amid talk of Greece reneging on commitments to international creditors agreed in return for rescue loans and a debt write-off earlier this year.
Italian bond yields, which had eased from danger levels in recent months, jumped to 5.578 percent, up from 5.441 percent on Tuesday.
French benchmark yields rose to 2.888 percent, up from 2.804 percent.
"The chance of Greece leaving the eurozone risks putting the very idea of Europe into question on the markets," said analysts at brokerage Aurel BGC.
"Quite clearly, investors will not be encouraged to lend to Portugal, Ireland or even Spain if there's a risk that one of these countries one day abandons the euro," they said.