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European bonds: It's every country for itself now

The honeymoon for European bond rates appears to be over for the Continent's most-troubled economies. After more than a year of interest rates across the Continent moving lower in lockstep—regardless of the country—the last 24 hours show a breakdown in the relationship.

Investors are still pouring into German bunds, much as they are still moving into U.S. Treasurys. But they are selling Italian, Spanish, Portuguese and especially Greek debt.

Doug Rediker, CEO of International Capital Strategies, told CNBC that the differentiation represents "a more rational recognition of both credit risks and economic performance within the euro zone."

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Investors are once again differentiating between countries based on the ability of their economies to grow—and for their governments to eventually pay back their debts.

Peter Boockvar, chief market analyst at The Lindsey Group, said that the end of easy money from quantitative easing and the "impotence" of the European Central Bank have alerted investors to a region that is not growing and where "debt-to-GDP ratios continue to rise."

Regarding Europe's biggest economy, Rediker noted that "the German economy is underperforming, but overall its domestic economic performance is considered strong. Countries like Italy and France have far less to shout about in terms of economic performance and reform efforts."

The rise in Greek bond yields is particularly sharp. The country's 10-year yield stood at nearly 9 percent on Thursday, after being below 6 percent just last month.

The current Greek government, led by Antonis Samaras, is trying to make an early exit from a bailout program it got from the European Union and International Monetary Fund, but investors are nervous about the country's ability to live without a financial backstop that would provide them cheap money in the event of a shortfall.

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"The credibility in the eyes of investors of Greece's ability to walk on its own (outside of the IMF help) without EU assistance is basically zero as seen by the reaction in the markets again," Boockvar said in a note to clients.

A visitor walks beneath a display at the Athens Stock Exchange, Oct. 15, 2014.
Angelos Tzortzinis | AFP | Getty Images
A visitor walks beneath a display at the Athens Stock Exchange, Oct. 15, 2014.

Also weighing on Greece, the latest polls show that the radical left party Syriza, led by Alexis Tsipras, leading among voters. There's also increasing speculation that the nation may undergo a possible snap election.

"The market clearly doesn't feel comfortable with either Samaras' exit strategy or with a possible Syriza government," Rediker said, "and so Greece is bearing the brunt of renewed market focus on political and economic risks in Athens."