Europe's single currency reached a 15-month low against the dollar following a French bond auction which saw almost all of the €8bn of debt targeted being sold.
The euro sank to 1.2830 against the dollar and also hit an 11-year low against the yen ahead of the auction.
French yields rose following the auction which saw €7.963bn of debt sold. It was hoped a successful auction would boost investors' confidence in France, which has been subject to speculation it will lose its AAA-rating imminently.
The yield on 10-year bonds rose to 3.29%, up from 3.18% before the auction. Ten-year bonds have fallen on each of the past six days, pushing yields as high as 3.37%, the most since 9 December, and were around 3.31% yesterday. They reached a high of 3.82% on 17 November.
Yesterday Germany sold €4.1bn of bonds at auction, getting more bids than its maximum target of €5bn, according to Bloomberg.
The gap between French and bund yields narrowed after the bund sale to 139 basis points but it compares with a premium of 46bp for Finland and 38bp for the Netherlands - both of which are also AAA-rated.
Portugal also held a bond auction yesterday, selling €1bn of 3-month bills at 4.346%, down from 4.873% at the previous auction on 7 December.
Italy and Spain will also hold debt auctions in the coming weeks. Spain's bond yields widened yesterday amid talks it is considering seeking support from the EU and IMF. The 10-year yield closed 15bp wider at 5.4%.
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