Okay folks, the alert I sent out is close to being validated this morning. I am watching Italian debt yields spiking in real time. Just a few weeks ago, the world was wringing its hands over Italian debt breaching the 6% mark. By late yesterday there was growing concern that Italian debt had climbed past 6.5%, and there was speculation that it might even — gasp! — be headed towards 7%.
Well, this morning Italian debt roared right through the 7% mark, and as of 5:37 a.m. (the time of this writing) we are seeing these shocking yields: Italy 10-year 7.37%; 5-year 7.64%; 2-year 8.03%.
What can I tell you? Simply that the game is entering a new phase, one that includes the risk of a massive, systemic banking failure as a possible feature.
The stresses in the European financial system are on full display in the Italian bond market rout, and the biggest implication is that banks no longer trust that the ECB is going to, or will be able to, mount an effective rescue. Note that Italian debt has been climbing even as the ECB has been steadily intervening in the Italian debt markets and auctions.
Don’t Bank on ECB Rescuing Italy
Nov 9, 2011
We have seen this movie before. Italian government 10-year bond yields are at a euro-era high of 6.7%—a level from which no other euro-zone government bond market has recovered.
Increased European Central Bank bond buying has failed to halt the price slide. European banks are dumping Italian bonds at a loss and being rewarded by the market. Given the euro zone’s inadequate bailout facilities, many argue only an unlimited ECB commitment to buy Italian bonds can prevent the debt crisis spiraling out of control.
But investors shouldn’t bank on the ECB doing the market’s bidding. First, the central bank has repeatedly said it has no mandate to act as lender of last resort to countries.
by lemonyellowschwin 
