New Canary in the Coal Mine: Spain

Insurance (Credit Default Swaps) on Spain defaulting on its bonds is near its record set in back in November 2011. Translation: bad, bad news for those who thought the European debt crisis was solved.

Here's why the market is concerned (and you should be too):

(1) It is now a fact that bond traders need to pay more for insurance against the Spanish government defaulting against its bonds (e.g. the premium for tornado insurance spikes when the tornado insurance provider not only knows that it's tornado season, but it knows that a tornado is headed for your house);

(2) Spain is the 12th largest economy in the world at $1.4 trillion (GDP) vs. Greece, the 32nd largest, at $305 billion (GDP) so Spain is following in Greece's path, except that Spain is over 4 times bigger; and

(3) the European Central Banks's LTRO 1 and 2 (long-term refinancing options) were basically the ECB lending government banks a trillion Euros (both 1 and 2 combined) at 1% annual interest rates for 3 years in hopes each country's banks would buy their own government's bonds at higher interest rates (benefiting from a carry trade of borrowing money at low interest rates and investing in higher interest paying investments), which indicates that the LTROs are NOT working.

CDS according to Wikipedia: A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event.

Source: http://en.wikipedia.org/wiki/Credit_default_swap
Source: http://www.zerohedge.com/news/spain-cds-track-record-close

Source: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

Source: http://www.cnbc.com/id/46567837/What_Is_an_LTRO_Anyway