Spain failed Thursday to achieve its maximum target in a sale of 10- and 15-year bond and paid higher rates, sparking fear in the bond and stock markets.
Spain raised 3.2 billion euros ($4.1 billion) within the range it had targeted but below the maximum 3.5 billion euros it had sought.
Demand was just 1.5 amount offered, less than at previous similar auctions.
The Treasury sold 2.15 billion euros of 10-year bonds and 1.05 billion euros of 15-year bonds.
Yields on the ten-year bond rose to 2.196 percent, up from 2.075 percent during the last similar auction in October when it hit a historic low.
Ten-year bonds are considered to be the main barometer of a country's standing on the eurozone bond market.
Yields on the 15-year bond fell to 2.842 percent, down from 3.514 percent during the last similar auction in May.
Spain, the eurozone’s fourth-largest economy which exited recession last year, plans to borrow slightly over 242 billion euros from debt markets this year, with 133 billion in medium- and long-term bonds.
Investor sentiment for Spain, which came close to requesting a sovereign bailout at the height of the eurozone crisis, had improved in previous auctions due to its better growth outlook and growing confidence in eurozone periphery countries.
But lower growth forecasts in Germany, the eurozone’s largest economy, and ultralow inflation, have fulled fears over slowing global growth and hurt sentiment for eurozone periphery nations.
Bond yields for these countries shot up on Thursday in the secondary trading markets, indicating that investors are demanding more to hold on to debt from these countries.
The yield on Spanish 10-year bonds jumped to 2.356 percent from 2.116 percent on Wednesday.
Greek 10-year bonds jumped to 8.656 percent from 7.854 percent.
Portugal rose from 3.585 percent from 3.286 percent, while Italy climbed to 2.665 percent from 2.422 percent.
European stock markets also slumped following the Spanish bond auction, with the Paris, Milan, Madrid, Lisbon and Amsterdam exchanges each fell by more than 3 percent.