A NEW AUCTION of German 10-year bond has gone ‘disastrously’, according to European traders – showing signs that the debt crisis consuming the Eurozone may be spreading to its strongest economy.

The country’s treasury this morning auctioned off €6 billion in bonds – but only received bids for around €3.8 billion of that amount, with investors apparently baulking at the low interest rate on offer.

Germany’s central bank, the Bundesbank, had to step in to buy the remainder of the bonds in order to stop the auction from failing altogether.

The bonds sold at an average yield of 1.98 per cent.

One analyst told the Wall Street Journal that the auction reflected the “deep mistrust” of the eurozone, but others used more damning words – with analysts telling both Reuters and Bloomberg that the auction was simply a “disaster”.

The auction was also hit by some fears over the Belgian government, which was rumoured to be seeking a renegotiation of the plans for the break-up of the Dexia bank.

Last month the government agreed to pump €4bn into the troubled Franco-Belgian bank – but the WSJ report said the Belgian administration was now looking to renegotiate the terms of this deal, apparently because it couldn’t pay its agreed share.

The price of borrowing for Belgium – which is now seeing fresh political turmoil – today rose to well over 5.3 per cent, the highest it has been in the euro area.

The news also sent the major European markets downward.