LONDON: Investors ran for the safety of top-rated German debt and ditched bonds in riskier southern Europe on Friday as Britain’s vote to leave the European Union gave Eurozone markets their biggest shock since their 2012 crisis.

German bond yields — an indication of government borrowing costs — dropped to record lows while equivalents in Spain, Italy and Portugal shot to multi-month highs.

The vote forced the resignation of Prime Minister David Cameron, paves the way for another Scottish independence referendum and deals a blow to unity across continental Europe at a time when other breakaway movements are gaining ground.

“Brexit is not just a UK issue. It is an issue for Europe and it is just the start of Europe having to figure out where the future lies,” Mizuho strategist Peter Chatwell said.

German yields across all maturities plumbed record lows, with the 10-year benchmark falling as low as minus 0.17 per cent, on track for its biggest drop since the height of the Eurozone crisis in August 2012.

US Treasury prices also soared on the rush into safe-haven assets, with 10-year yields tumbling to 1.41 per cent.

“It’s a day where investors don’t care about yield, they are gravitating towards safe-haven bonds,” said Jack McIntyre, portfolio manager at Philadelphia-based Brandywine Global Investment Management.

The decision to leave by Britain, which accounts for around a sixth of the bloc’s economic output, has emboldened eurosceptics in other member states, with populist leaders in France and the Netherlands demanding their own referendums.

Italy’s popular 5-Star Movement vowed to pursue its own proposal for an Italian referendum on the euro.

“Before the Brexit vote, there were many countries that were not happy with the EU and that would like to see change; if that is exacerbated, then the impact on bond markets could be quite significant,” said David Zahn, head of European fixed income at Franklin Templeton.

The cost of insuring exposure to Irish debt nearly doubled, surging to the highest level in nearly 2-1/2 years as investors weighed the implications of Brexit for neighbouring Ireland, which counts the UK as a major trading partner.

RIPPLE EFFECTS But the market fallout was most keenly felt in southern European countries like Spain, grappling with a separatist movement in Catalonia and set to return to the polls this weekend for the second time in six months.

Brexit strengthens the case for Catalonia to be allowed to seek independence from Spain, the head of the region’s government said.

Spain’s 10-year yield jumped 17 basis points to 1.64 per cent, with the premium it would pay to borrow over benchmark Germany stretching to its widest in over two years.

The cost of insuring Spanish debt against default — as measured by credit default swaps — rose to its highest since at least late 2014.

Italy’s 10-year bond yield soared to 1.76 per cent, its highest level in more than four months.

In Portugal and Greece, the two junk-rated borrowers in the Eurozone, yields surged 27 bps and 95 bps, respectively, although all peripheral yields pulled off their highs with traders saying the European Central Bank’s asset purchases had helped calm markets.

Money market rates implied that the ECB would cut interest rates by September, with around a 60 per cent chance seen for a cut at its next meeting in July.

Citi said in a note that, in the coming days and weeks, it also expected the Bank of England and other European central banks to cut rates, and the US Federal Reserve to delay its next hike to December 2016 or beyond.

Any perceived hit to near-zero inflation in the Eurozone could certainly tip the ECB towards further easing.

A key measure of the bloc’s long-term inflation expectations, the five-year, five-year forward rate, slumped to a record low of 1.34 per cent, moving further away from the ECB’s target of close to 2 per cent.

“On the European continent, we have to brace ourselves for serious ripple effects. The Brexit shock, the resulting uncertainty and likely market upheaval will also dampen growth in the Eurozone for the remainder of this year,” said Holger Schmieding, chief economist at Berenberg Bank in London.