Back in January, we released an article discussing the debt problems in Spain and Italy and how the rates at the time were going to reverse.
Well, they have reversed, with Spain's rates going higher than Italy.
Over the past year, Spanish and Italian rates moved together, then Italian rates jumped over Spain's during the height of the euro crisis.
The above chart shows the relationship between the Spanish (purple) and the Italian (blue) interest rates in the past month. This officially means that Spain is clearly becoming the bigger concern in Europe. With the amount of outstanding debt much higher than that of Greece, Portugal, or Ireland, a bailout is not an option for Spain.
We believe that Spanish and Italian rates from this point on will continue to move in par with each other, with the Spanish 10 year keeping a 40 to 60 basis point premium on the Italian 10 year bond. We'll continue to keep an eye on Europe as Spain appears to be the next focal point in the Eurozone Debt Crisis.