Investors pushed the yield on Spain's benchmark 10-year bond above 7 percent by the close of trading on Monday as European Union finance ministers gathered in Brussels to discuss the terms of Eurogroup aid to troubled Spanish banks.
A yield of more than 7 percent is widely viewed as unsustainable.
The risk premium on Spanish debt, the extra return investors demand compared with equivalent safe-haven German debt, rose to 574 basis points.
Continued market pressure on Spain provided the backdrop for an EU ministerial meeting whose stated purpose is a "political accord" on the conditions under which the Eurogroup will provide up to 100 billion euros ($122.7 billion) to shore up Spanish banks.
The final text is not expected to be ready until July 20.
Negotiations between the Spanish government and experts from the European Commission, European Central Bank, International Monetary Fund and the European Banking Authority began two weeks ago.
Though the terms of the aid package for the banks remained undefined, investors grew less pessimistic about Spain in the course of Monday's trading after word came out of Brussels that EU finance ministers are prepared to give Madrid an extra year to bring its budget deficit below 3 percent of gross domestic product.
EU sources cited a draft document that calls for allowing Spain to run a deficit of 6.3 percent this year and to meet the below-3-percent target in 2014, rather than in 2013, as originally mandated.
Meanwhile, the conservative government in Madrid signaled further steps to reduce the deficit.
Prime Minister Mariano Rajoy's administration is considering an increase in value added tax as a part of a broader shift away from taxing labor, Finance Minister Cristobal Montoro said Monday.
Spain's economy has been battered by the global recession and the collapse of a massive real-estate bubble, which has left banks saddled with toxic property assets.
The overall unemployment rate stands at almost 25 percent and nearly half of Spaniards under 25 are jobless, while tens of thousands of families have been evicted from their homes after falling behind on their mortgages.
Rajoy's administration says it will take new steps soon to bolster growth, but it must balance that aim with its commitments to slashing the budget deficit. EFE