Spain's bonds fell, sending five-and 30-year yields to euro-era records, as the region of Valencia prepared to seek a rescue, deepening concern policy makers are failing to find solutions to the debt crisis.

The nation's 10-year bonds fell for a seventh day, increasing the extra yield investors demand to hold the securities instead of German bunds to the most on record, as Spain also cut its growth forecast. The Italian-German yield gap reached the most since January and Germany's two-year yields fell to a record. Belgian and French 10-year bond yields declined to all-time lows as investors sought higher-yielding alternatives to benchmark German debt.

“Valencia's request for assistance underlines fears as to the central government's ability to bring wayward regions to heel,” said Richard McGuire, senior fixed-income strategist at Rabobank International in London. “That puts Spain under a considerable degree of pressure.”

Spanish five-year yields jumped 47 basis points, or 0.47 percentage point, to 6.88 percent at 5:21 p.m. London time, after touching 6.903, the most since the euro started in 1999. The 4.25 percent note due in October 2016 dropped 1.595, or 15.95 euros per 1,000-euro ($1,216) face amount, to 90.535.

The euro fell to its lowest level since 2000 versus the yen and reached a two-year low against the dollar.

Valencia will tap Spain's financing facility for regional governments, the area's administration said in a statement on its website today. The funding mechanism was created last week to inject liquidity into the cash-strapped regions.

Eoin Treacy's view The stock argument in defence of Spain last year was that its sovereign debt to GDP ratio was low enough to absorb any problem with its banks. Fast forward and we see that while the sovereign is relatively unencumbered by debt, Spain regions are heavily endebted and sufferring from the disappearance of revenue from the property market. Economic contraction, high unemployment, a swiftly deflation property bubble as well as the prospect of years of austerity raise serious questions about the sustainability of the current situation. (Also see Comment of the Day on July 9th 2012).

Spain 10-year spreads over Bunds broke upwards two weeks ago and continue to set new post Euro-accession highs. Outright intervention to support the market will be required to check selling momentum. Italian spreads have surmounted 500 basis points again.

Pressure is also evident in the stock market where Spain's IBEX Index pulled back sharply today. If the June low near 6000 is to be expectedf to hold a clear upward dynamic will be required to signal a return of demand dominance. The Italian MIB Index is in a similar position.

Concurrently the bond futures of perceived safe havens such as the USA, Germany, the UK, Japan, Canada, Australia and Switzerland have all firmed and clear downward dynamics will be required to question potenital for additional upside.

The Euro continues to extend its medium-term downtrend against the US Dollar. While becoming increasingly overextended relative to the 200-day MA, a clear upward dynamic would be reuqired to confirm support in the region of $1.20.