There are increasing signs that the semblance of normality we experienced over the summer could have been just a casual summer affair, after all. Bloomberg reported yesterday that some Eurozone sovereign credit spreads are rising again.

The gaps between 10-year German bond yields and Irish and Portuguese debt grew to all-time highs, while the German-Greek yield spread increased to the widest since May. The yen rose to as little as 83.52 per dollar as the Bank of Japan refrained from increasing bank loans. Ten-year Treasury yields lost 10 basis points to 2.6 percent. Gold futures closed at $1,259.30 an ounce.

Banks led stocks lower on concern European lenders will require more capital to compensate for holdings of bonds in the region’s weakest economies. Germany’s banking association said yesterday that the nation’s banks need to raise $135 billion and Pacific Investment Management Co. said Greece still faces “substantial” default risk.

In plain English, this means that an increasing number of worried bondholders are searching for the shrinking number of “greater fools” to pass the debt hot potato to. The price of the hot potato – the interest rate on the excessive debt – must therefore rise. When the cost of debt rises to crisis levels, Eurozone leaders typically meet in Brussels on Sundays to come up with imaginative ways to solve the debt problem with … yet more debt.

The potential return of an acute phase of Eurozone sovereign debt stress was flagged here about a week ago in Irish Worries for the Global Economy, where I quoted material from Baseline Scenario, and again a few days ago in the Lull Before the Storm (Wolfgang Münchau’s FT column)

I searched a little for the earliest warnings about the Eurozone’s escalating debt problems. I found this piece by John Mauldin from February of 2009, and this piece by Simon Johnson , Peter Boone and James Kwak from October, 2008. Two years ago…