Investors who oversee more than $3.2 trillion expect Spain to become the fourth euro member to need external funding as borrowing costs surge to levels too punitive for the nation to finance its needs on the capital markets.

Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.13 percent, as investors at Fidelity Investments, Frankfurt Trust and Principal Investment Management say the nation may lose market access. The bonds are the worst performers among 26 developed markets since June 9, when Economy Minister Luis de Guindos said he would request as much as 100 billion euros ($127 billion) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets.

“Yields are at levels at which Spain can’t really afford to finance itself for more than a few months,” said Craig Veysey, head of fixed income at Principal Investment Management in London, part of Sanlam Group, which manages $72 billion. “The banking bailout doesn’t really help Spain’s credibility in the market and the probability is rising that it will be asking for a bailout for the sovereign.” Veysey said he doesn’t own Spanish government bonds and has no plans to purchase them.

Prime Minister Mariano Rajoy called on Europe’s policy makers last week to do more to support Spanish bonds after the bank rescue failed to halt yields from climbing to levels at which Greece, Portugal and Ireland needed to seek help. His government is battling to reduce the nation’s debt load as the recession in the euro area’s fourth-largest economy deepens, leaving the jobless rate at more than 24 percent.

Greek Election

Adding to investor concern is Greece, where analysts at Bank of America Merrill Lynch say the country may run out of money next month. The nation’s largest pro-bailout parties, New Democracy and Pasok, will have a combined 162 seats, assuming they govern together in the 300-member parliament after yesterday’s elections, according to Interior Ministry projections with 99 percent of the vote counted. The result eased speculation that Greece was headed for an imminent exit from the 17-nation euro area.

Spain’s 10-year bond yield has surged more than 2 percentage points from this year’s March 1 low. The rate climbed 26 basis points today. The yield difference to similar-maturity benchmark German bunds widened to 569 basis points, the most since the start of the euro.

Funding Needs

The nation’s bonds also risk incurring higher trading costs at LCH Clearnet Ltd. as their performance relative to Europe’s AAA rated benchmark deteriorates. LCH, Europe’s biggest clearing house, increased the cost of trading Irish and Portuguese bonds by 15 percent when yield spreads for those securities climbed above 450 basis points.

A three-year, fully-funded program for Spain would probably cost about 300 billion euros in addition to the 100 billion euros already provided in the banking bailout, said Nick Eisinger, a sovereign analyst at Fidelity Investments in London, a U.S. mutual fund company with $1.6 trillion of assets.