"This is still a bumpy road," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. "This kind of news is highly market-moving and any relief we see in terms of spreads tightening is vulnerable."

The yield on Portugal's 10-year bond increased 24 basis points, the most since Sept. 20, based on closing prices, to
5.93 percent as of 3:39 p.m. in London. That left the extra yield, or spread, investors demand to hold the bonds instead of similar German bunds at 328 basis points.

Greece's 10-year yield rose 79 basis points, the most since June 15. The spread with bunds widened to 779 basis points, the most since Oct. 1. Ireland's 10-year bonds yielded 408 basis points more than similar bunds, up from 393 yesterday.

Portugal's government and the opposition Social Democrats broke off talks on the 2011 budget proposal, which include plans for the deepest cuts since at least the 1970s. There's "no possibility of continuing" negotiations, Eduardo Catroga, a former finance minister who represented the rival party in the discussions, said in Lisbon today.

U.K., U.S. Bonds Fall
Prime Minister Jose Socrates, lacking a parliamentary majority, needs the largest opposition party to back the budget or abstain for it to be passed. The Social Democrats have opposed tax increases and called for deeper spending cuts. Portugal sold 611 million euros ($843 million) of bonds due in 2014 today, attracting bids equivalent to 2.8 times the amount offered, down from 3.5 times in September.

Eoin Treacy's view The European Commission's agreement with high deficit peripheral countries was that liquidity would be made available in return for fiscal consolidation measures aimed at bringing deficits back to 3% by 2014. However, this assumes governments can deliver on these commitments. This is by no means certain. Countries with a tendency towards public demonstration, particularly on the southern periphery, do not have a very good record of cutting public spending and raising taxes simultaneously without recourse to a devalued currency.

The €800 billion bailout package arranged earlier this year to protect Greek creditors may yet need to be tapped for other high deficit offenders if budget cutting plans are not successfully adopted by the respective parliaments. Portugal currently represents uncertainty and Ireland is may take centre stage in a few weeks with its budget. This suggests that anxiety is likely to remain a feature of Eurozone bond markets for the medium term.

Spreads for Irish 10yr debt over German Bunds pushed back up to test the high near 420 basis points today and a sustained move below 375 would be required to question the medium-term uptrend consistency. Greek spreads found support in the region of 650 basis points while Spanish, Portuguese and Italian spreads remain relatively steady.