The cost of borrowing for the eurozone’s peripheral economies rose to record highs on Thursday amid signs the debt crisis that forced Ireland into a multibillion-euro bail-out was spreading.

Irish, Portuguese and Spanish bond yields surged to their highest points since the launch of the euro, as traders said even some of the bigger eurozone countries could soon be affected. Matt King, global head of credit strategy at Citi, said the danger was the selling could develop a momentum of its own. “The moment you have even a flicker of a doubt about default risk, it becomes rational to reduce positions in a larger country like Spain purely on grounds of diversification,” he said.

Irish 10-year bond yields rose above 9 per cent, Portuguese yields jumped further above 7 per cent – a level Lisbon says is not sustainable – while Spanish yields spiked further above 5 per cent. The euro dipped towards two-month lows, falling for the fourth day in a row.