Right now the spread between Bunds and the Spanish ten-year is 609 basis points. The catalyst for the increase in Spanish spreads may be the news that the indebted Spanish regional government in Valencia is on the verge of seeking a bailout from the Spanish government.
Spain has hit the wall. With debt problems at local authorities and banks looming as contingent liabilities for the Spanish government, it is only a matter of time before it succumbs and asks for the European rescue fund to start monetising Spanish sovereign debt.