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Emerging market fears hit EM-newcomer Greece

Yields on Greek bonds hit highs for the year on Monday while the stock market fell over 1 percent, as the euro zone country was caught up in the emerging market (EM) selloff.

Emerging market currencies and stocks continued to decline on Monday, due to fears of a slowdown in China, and concerns the Federal Reserve will opt for further cuts to its monthly bond-buying program when it meets on Tuesday.

(Read more: Emerging market fears hit EM-newcomer Greece)

Milos Bicanski | Getty Images News | Getty Images

In Europe on Monday, Greece was worse hit than peers like Portugal. Yields on Greece's 10-year bonds were at 8.751 percent by mid-afternoon London time; in comparison, Portugal saw yields for its 10-year debt fall by 1.27 percent to 5.033 percent.

"The fallout from the selloff in emerging markets is affecting the weaker and less-liquid credits in the periphery of the euro zone, and those with economic links to EMs," said Nicholas Spiro of Spiro Sovereign Strategy.

Nick Stamenkovic, macroeconomic strategist at RIA Capital Markets, added: "Greek sovereign bonds have been caught in the crossfire from a broad-based selloff in risk markets. Bunds and other sovereign bonds have benefited from renewed safe-haven flows. The illiquidity of Greek government bonds was another negative factor as investors shifted away from illiquid assets in heightened uncertainty, fearing a sharp fall in prices."

However, head of the Eurogroup of 18 euro zone finance ministers Jeroen Dijsselbloem said on Monday that he did not think emerging market difficulties would spread to the euro zone, The Guardian newspaper reported.

Greece was formally downgraded to developing market - or emerging market - status in November, when its equities were moved to the MSCI Emerging Markets Index. Greece is the first country to receive such a downgrade from MSCI, which is a leading provider of stock indexes.

"Greece's official emerging market status has become something of a liability in the current environment," said Spiro, but he added: "The fact remains that Greece's underlying fiscal and structural problems will persist irrespective of sentiment towards EMs."

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato

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