The rapid rise higher in Italian yields in the past week is a big red flag for the eurozone economy.
It comes after Lagarde said this on Thursday:
"Now, you asked me a question about the spreads: I would like to just observe that we are not seeing any such development. While yields have moved up, spreads have not widened in any significant manner."
They've certainly widened since and given the enormous debt load in Italy and the ECB inevitably pulling back from bond buying, there's an old problem brewing here.
Technically, the trendline from the peak of the eurozone debt crisis at 7.4% is now under threat. That might contain a rise to some extent but it will depend on inflation going forward. The pricing numbers will be absolutely critical in the next few months. If there's a continued escalation it will quickly become apparent that the ECB is behind the curve.
The path from there starts to look much like period immediately after the financial crisis when rising rates quickly morphed into a eurozone debt crisis.
