Tesla is rated six notches into noninvestment grade, or junk bond, territory by both Moody's Investors Service and S&P Global Ratings. Both rating agencies have a negative outlook on the company's debt.

The electric vehicle maker's 5.3% senior unsecured note due in August 2025 fell 2.26 cents to a bid price of 85.1 cents on the dollar, with its yield rising nearly half a percentage point to 8.37% in active European trading. It was the largest price drop since September.

The bond's yield spread, the measure of additional compensation demanded by investors to own the security rather than safe-haven U.S. Treasuries, widened by 50 basis points.

The cost for a five-year credit default swap, a form of insurance against default, rose by the most in a day since October. Including an upfront cost of more than 17%, the cost to insure a Tesla bond against default was roughly 22 cents on the dollar of insured face value.

The stock fell nearly 11% to $261.80 in premarket trading.

(Reporting by Dan Burns in New York; Editing by Jeffrey Benkoe)