The premium investors demand to hold Belgian government bonds rather than benchmark German debt rose to its widest level since early 2009 on Monday as the country issued 2 billion euros of 2014, 2020 and 2035-dated bonds.
The Belgian/German 10-year bond yield spread widened to 110 basis points from around 102 bps at Friday's settlement.
Belgium hit the middle of its target range at higher yields than in previous auctions in a sign investors are increasingly concerned over its high level of debt as the euro zone crisis continues to claim casualties.
The cost of insuring Portuguese and Spanish debt against default rose to a record high on Monday after a tepid Italian auction result and on fears over the spread of the euro zone debt crisis.
Italy sold 5.5 billion euros of government bonds on Monday, which analysts said drew tepid demand after an EU/IMF bailout for Ireland failed to stem concerns about the fiscal problems plaguing peripheral issuers.
"Spain and Portugal are now at record wides, suggesting that contagion fears haven't been assuaged by Ireland's bailout," said Markit analyst Gavan Nolan.
Back in Belgium, bid-to-cover ratios, which compare the number of bids received in an auction to the number of bids accepted, were 1.79, 1.76 and 1.79 respectively, below ratios in previous auctions.
"The yield is obviously a lot higher because in general the market is at a higher yield than it was the last time this bond was opened," Peter Chatwell, rate strategist at Credit Agricole told Reuters.
"The spread over Bunds is significantly wider than last time round and that represents the debt crisis playing across the credit spectrum in the euro zone," he added.
David Schnautz, rate strategist at Commerzbank told Reuters: "Obviously it was a rather challenging timing. The investor community had to digest the news flow over the weekend. So that's not ideal when you're preparing investors for taking on new debt."
Bond vigilantes are increasingly targeting the country of 11 million people amid concerns over its political instability and a debt/GDP level of almost 100 percent.
Politicians have been trying since the June elections to broker the formation of a government, but the talks have resulted in complete deadlock and the prospect of new elections is looming.
Belgium could be caught up in the same web as the peripheral euro zone nations of Portugal, Ireland, Italy, Greece and Spain - the so-called PIIGS - if it does not succeed in forming a government soon to reduce the budget deficit through fiscal austerity and bring down its debt, some analysts say.
“If the crisis lasts another three to six months, it will become a problem. Then the structural issues, with an ageing population, become more serious,” Philippe Ledent, economist at ING Belgium told CNBC.
In its latest report on Belgium, rating agency Standard & Poor’s wrote that its AA+ rating on the country’s long-term debt – the second-highest rating at the agency – could come under downward pressure if a continued political stalemate were to diminish the authorities' capacity to address the “outstanding challenges”.
With no federal government in place to draw up a new budget, S&P fears the country will not be able to reduce its deficit through a series of austerity measures and bring down its debt.
But the situation is very different from Greece, Portugal and Ireland, Ledent said.
“We can never exclude speculation, but fundamentally it is hard to justify such speculation,” Ledent said.
The latest data for 2011 show that Belgium’s debt level will continue to hover around 100 percent of GDP.
“This is of course a problem," Ledent said. "But the 2010 budget deficit will probably be around 4 percent next year…And contrary to the peripherals we are fully benefiting from German growth.”
“Contrary to some comments, the fact that we don’t have a government is not bad for our public finances…there may be no austerity, but there will also be no spending,” he said.
The country has until 2012 to bring the deficit back under the EU’s ceiling of 3 percent.