European Debt Crisis Returns to Fore - Reports From Financial Times Highlight

There is growing concern regarding Portugal's ability to raise money in the capital markets. This has sparked increasing fears of a potential default in one the Eurozone members, which sent the yields on Portugal's 5 year bond to the highest level since the formation of Euro.

Additionally the 10 Portuguese bond widened against the German 10 year benchmark to levels not seen since November last year. The spread between the German and Portuguese 10 year bond to 415 basis points. (see previous post about sovereign debt for charts)

Crucially the overnight lending rate, which plunged as a result of the huge emergency liquidity that was injected into the system by the European Central Bank has now risen back to levels close to the ECB refinancing rate of 1%. The reason why this is of such significance is because when the refinancing rate rises, it indicates that there is demand for emergency loans. So as the interbank lending rate increases, one would expect the demand for emergency funding to increase along with. These putting investors on edge.

http://www.ft.com/cms/s/0/16a94878-3acc-11e0-9c1a-00144feabdc0.html#axzz1EK0iPhZm