Italy's 10-year yields spiked through 6pc today and hit a record post-EMU spread over German Bunds, Spain's yields once again flirted with danger at 6.2pc.
And today JP Morgan warned clients that Italy has a thin margin of safety and risks running out of cash to cover spending as soon as September. "Italy and Spain will run out of cash in September and February respectively, if they lose access to funding markets," said the bank's fixed income team of Pavan Wadhwa and Gianluca Salford. Worries about Italy's immediate cash level risks leading to "a self-fulfilling negative spiral."
JP Morgan said Italy had €44bn in liquidity for government operations at the end of May. It did not follow other countries in "front-loading" debt auctions while the going was good.
Spain is fully-funded until next year, but its fate may hang on what happens in Italy. "We believe the fate of the two countries is linked. It is very hard to imagine only one of the two losing market access," said the report.