The price of betting that Japan will default on its debt surged 24% Tuesday, putting the cost of insuring against a default on $10 million of Japanese government bonds at $120,000 annually.

That’s double the price seen as recently as last fall. The surge comes as news reports point toward a deepening disaster at nuclear plants hit by Friday’s 9.0-magnitude earthquake and an accompanying tsunami. More than 3,000 people were killed in the catastrophe.

At first blush the surge in the credit default swaps market looks like the latest symptom of deep-seated worries about Japan’s deteriorating fiscal position. There has been speculation since the quake hit that the Japanese government will sell more bonds to finance reconstruction, adding to its massive debt burden, estimated at more than double annual economic output.

That trend seems apt to push rates up. But the massive selloff in Japanese stocks – they dropped more than 10% Tuesday in their third straight daily decline – is creating a countervailing flight-to-safety flow. Accordingly, the 10-year JGB yielded 1.22% Tuesday, down from 1.3% Monday.

One stray question is how hard the selloff in the stock markets and a surge of quake-related loan losses will hit Japan’s banks. They have been limping along for years on thin profit margins while the country’s economy stagnated.

Analysts at Creditsights wrote Tuesday that the plunge in Japanese shares over the past three days mean that Japan’s banks probably don’t have any paper gains left on their stock portfolios  — which could leave them more exposed if the long-awaited surge in interest rates does materialize.

We have seen that movie before. If the selling keeps going and the banks take a turn for the worse, the government could have to stand behind the banks, which will only add to the questions about Japanese solvency.

But right now it is hard to gauge how much fear is tied to Japan, and how much is just a general reassessment of an unprecedented market moment.

In a sign of generally rising stress, credit default swap spreads on banks around the globe widened Tuesday, with JPMorgan (JPM) (which has substantial exposure to Japan) rising 10% to $90,000 and Wells Fargo (WFC) (which doesn’t) up 7% to $88,000. Risk, we remember at times like these, can come in many unhappy forms.

Also on Fortune.com:

• Sagging stocks put Bernanke on the spot
• In Japan, fending off the unthinkable
• Avoid knee-jerk, anti-nuke moves

Follow me on Twitter at @ColinCBarr.