Stock futures are surging after the Fed signaled interest rate cuts may begin as early as July.US Marketsread more
The billionaire investor believes the stock market is in a "zone of fair value" at current levels.Marketsread more
The Federal Reserve may be on its way to delivering a half-point interest rate cut next month, according to Goldman Sachs economists.Economyread more
However, Slack chief Stewart Butterfield says, "The broader world of email will stick around."Technologyread more
Crude oil prices jump on news of the attack, which Iran says happened over its territory.World Politicsread more
Workplace messaging firm Slack is about to go public in a red-hot IPO market, but it's approach to going public--using a "direct listing"--is slightly different than an IPO.Trader Talk with Bob Pisaniread more
The yield on the benchmark 10-year Treasury note fell below 2% for the first time since November 2016 on Wednesday.Bondsread more
National Securities' Art Hogan sees the U.S.-China trade war as the market's biggest risk – not Fed policy.Trading Nationread more
The Philadelphia Federal Reserve's manufacturing gauge tumbled this month, solidifying the Fed's case for easier monetary policy.Economyread more
Declining traffic to Olive Garden, Darden's top restaurant chain, resulted in weaker-than-expected revenue for its fiscal fourth quarter.Restaurantsread more
President Donald Trump has publicly blamed the Federal Reserve's interest rates hikes for holding back U.S. economic growth.The Fedread more
The decline in the cost of repaying debt for the weaker euro zone economies in the past two years is one of the most important reasons the euro zone appears to have made a halting recovery from its debt crisis. Yet this could be coming to an end.
Look at this chart from Citi FX, which shows that foreign ownership of Spanish and Italian bonds has sunk since the beginning of 2011. Domestic banks in both countries seem to be propping up their own economies by borrowing cheaply from the European Central Bank (ECB) during its two major liquidity operations and buying up their countries' debt – which drives down the cost of repaying that debt for the country.
The question of what happens when the cheap loans are removed from this cycle has not been answered, despite ECB President Mario Draghi's pledge to do "whatever it takes" to save the euro.
(Read more: Mario Draghi's greatest hits)
At the same time, the BTP-Bund spread (the difference in Italian and German debt costs) and the Bono-Bund spread (the difference in Spanish and German debt costs) have narrowed. Both of these are viewed as a measure of the "risk premium" attached to both Italy and Spain, so their narrowing indicates that these countries are perceived as less risky.
A "sizeable portion" of the cheap loans pumped into the euro zone banking system by the ECB, known as long-term refinancing operations (LTROs), were used to buy Italian and Spanish debt due to mature at the end of 2014 or the beginning of 2015. Italian and Spanish banks were some of the biggest takers of LTROs, with close to 300 billion euros worth of the loans.
Banks across the euro zone will come under pressure to sell off riskier assets next year as a major ECB Asset Quality Review begins – which could mean that they sell off some of the bonds bought with these cheap loans. Borrowing between banks is already becoming more difficult as euro zone banks are becoming more cautious.
(Read more: Stressful times for Europe's banks)
"Italy and Spain may face mounting funding pressures in late 2014 if domestic banks are unable or unwilling to roll their maturing sovereign debt positions," Valentin Marinov, head of European G10 currency strategy at Citi, pointed out.
And other investors may sell their Italian and Spanish bonds if it looked like their economies were about to perform worse, which would send their cost higher again.
(Read more: Berlusconi gone, but Italy's problems remain)
Keeping yields low is important not only for Italy and Spain, but for the rest of the euro zone. When yields on 10-year Spanish and Italian bonds hit the danger zone of 7 percent at which other euro zone economies like Ireland and Greece had to be bailed out by international lenders, they were both seen as perilously close to needing a bailout. Spain had a bailout for its banks, after its property boom collapsed, but avoided a full Greek-style bailout.
Italy and Spain are the euro zone's third and fourth biggest economies respectively, so any threat to their stability, particularly if one of them needed a bailout, could affect the entire region – and weaken the euro.
- By CNBC's Catherine Boyle. Twitter: .