Alarms Are Sounding in European Bonds

Jean-Claude Trichet, the European Central Bank's former president, used to argue that one of the euro's greatest achievements was driving government borrowing costs down to match those of Germany, the region's benchmark borrower. In recent weeks, however, fissures have emerged that reflect investor concern about the political and economic outlook for at least three of the common currency's members.

Bond yields for France, Italy and Greece are all spiking higher relative to benchmarks. French 10-year borrowing costs have surpassed 1 percent for the first time in more than a year on fears that its presidential election will result in a victory for National Front leader Marine Le Pen, whose policy ideas are hardly market-friendly. Italy, deeply divided after a referendum on constitutional reform that led to a change in government, has the added problem of a banking industry that defies remedial efforts. And Greece is back in the news for all the wrong reasons as its creditors wrangle over the latest bailout review.