That's true. Just like subprime was merely a sympton of excess credit, that was exposed during the deflating housing bubble in the US, sovereign debt concerns are merely a sympton of excess debt in the system. And that will deteriorate as govts are forced to bailout their banks due to excess debt and so it goes (from private to corporate to sovereign). The debt house of cards is reaching a monumental tipping point of unsustainability.
Euro Sags After Italy's Bond Yields Spike Above 7%
Italy's soaring government bond yields pushed the euro close to a one-month low Tuesday, with initial optimism over the country's new leadership overtaken by fear that Europe's debt crisis is entering a perilous new phase.
On the same day that data revealed the 17-nation currency bloc barely grew last quarter, Italy - the euro zone's third largest economy - saw yields on its benchmark 10-year bonds surge anew above 7%. That level is a psychological bulwark many economists view as unsustainable for any economy - much less Italy, with its sluggish growth and a debt ratio among the highest of developed nations. The bad news drove the euro below $1.35, within view of its lowest level since October 10.
Despite new Italian austerity measures and Prime Minister-designate Mario Monti forming a new government to implement them, investors remain unsettled by Europe's long-running debt woes.
Fears are rampant that problems roiling the euro zone's most troubled members are now leapfrogging to larger economies. In an indication of market jitters, the difference between French and German government yields has widened recently, with the cost of insuring against euro zone debt default surging to new highs for other euro zone members such as Austria and the Netherlands.
"The overarching theme is bond spreads," noted John Doyle, foreign exchange trader Tempus Consulting in Washington. Noting that Spain's government bond yields are now back above 6% for the first time in three months, he said concerns about debt-saddled Greece are making investors nervous that "Italy could be the next shoe to drop."
