Turmoil in Europe's bond markets

NEW YORK (CNNMoney.com) -- Amid the latest signs of strife in the eurozone, European bond markets are in some tumultuous times.

Government bonds are usually thought of as one of the safest investments, because the risk of a country defaulting on its debt is considered slim. But lately, signs of instability in Europe have rattled global markets, and turned the safe-haven bid on its head -- at least on that side of the Atlantic.

Investors are more reluctant to hold on to European government bonds and are demanding higher yields. At the same time, they're scooping up more insurance against defaults on those bonds, in the form of so-called credit default swaps.

"Investors are requiring a lot more," said Dan Cook, senior market analyst with IG Markets. "They have to pay a higher premium for insurance, but they're also expecting higher yields."

Bond market turmoil has sent eurozone credit default swap prices soaring, and on Tuesday alone, the cost to insure against defaults on government bonds from Portugal, Spain, Italy and Ireland all closed at record highs in London, according to Markit data.

Yields on debt from Greece, Portugal, Spain, Italy and Ireland have all surged as well.

Those highs, across the board, are the farthest thing from a vote of confidence in European governments' ability to pay off their staggering debts, even as many of those countries implement harsh budget cuts.

Over the weekend, European officials unveiled a widely-anticipated bailout for Ireland and its banks totaling about $113 billion. While many hoped it would calm investors' jitters about Europe's debt crisis, markets instead were "nonplussed," said Kevin Giddis managing director of fixed income at Morgan Keegan, in a note to investors.

"Mainly, investors are worried that there is more to come," he said.

Because of the way eurozone countries are tightly connected and invested in each other, investors fear that a debt crisis in one country can cause a ripple effect through the entire continent.

That's why the European Union and the International Monetary Fund have already granted bailouts to both Greece and Ireland.

But now investors are wondering how far the helping hand from the EU and the IMF will extend. If Portugal is next, then what about Spain, asks Cook. At some point, the bailouts become unsustainable, he said.

"It's like going from light speed to ludicrous speed," he said, referring to the 1987 slapstick comedy Space Balls. "Now at this point, it's really ludicrous. It's gone past that point where the specific numbers don't even matter so much. It's just not sustainable."

U.S. Treasuries: Meanwhile, as Europe's debt crisis intensifies, U.S. Treasuries have gotten a lift.

"Investors are going to go somewhere, and if they're looking for a safehaven -- it's still going to be Germany and the U.S.," Cook said.

Prices on U.S. Treasuries climbed Tuesday, sending yields -- which move in the opposite direction -- lower. The yield on the benchmark 10-year Treasury note dropped to 2.81%, from 2.82% on Monday.

Yields for the 30-year bond slipped to 4.12%, from 4.15%. The 5-year Treasury note dipped to 1.47%, and the 2-year note fell to 0.47%.