The fear was that capital levels of certain European banks would fall below their required thresholds, forcing their Coco bonds to convert from debt into equity.

While the bonds were issued by the banks and not the countries, sovereign debt issued by European peripherals — or what are perceived to be the countries with riskier credit — got caught up in the selling. This caused their yields to rise in comparison to Germany's, whose debt is considered to be a "safe-haven."

Portugal's 10-year yield blew out to 390 basis points more than Germany's while Spanish and Italian spreads widened to 159 bps and 152 bps respectively, before European Central Bank president Mario Draghi said the ECB was "ready to do its part" and loosen policy even further in mid-February.

The announcement from Draghi marked the top in the move for sovereign spreads, which immediately began to tighten.