The euro corporate bond market has been charging ahead since the ECB’s EUR $1tn long-term refinancing operation (LTRO) injection into the region’s banks. Corporates have taken advantage of this to reduce their reliance on loans, changing the region’s average loan-to-bond ratio from its traditional 70/30 to nearly 50/50, according to Fitch. But any resurgence of concern over Spain’s credit could bring the party to a messy halt.

There are a number of reasons for the rally in both investment grade and junk bonds. Banks are slimming down their balance sheets. And, since the ECB promised unlimited short-term liquidity to the markets, investor risk appetite has skyrocketed. Companies are taking advantage of this to secure affordable long-term financing.

Meanwhile, companies that need to refinance pre-crisis LBO or leveraged recap debt, which was originally five to seven years in tenor, are looking to the bond market to do so. And financial sponsors and strategic buyers are looking to the high yield market for acquisition and recap financing in the wake of the collapse of the CLO market, and with it, banks’ “originate and distribute” model.

But the European debt crisis, which brought the corporate market to a near standstill in 2011, is still burbling in the background. Standard & Poor’s downgraded Spain’s sovereign rating to BBB- from BBB+ earlier this month, and subsequently downgraded its regions and 15 of its banks. Any further move would put the country in junk bond territory, causing such widespread disruption it is likely the markets would seize up.

First, tarring Spain and all its financial institutions with a junk rating would double the size of the junk bond market. Simultaneously, investors that are barred from holding junk bonds would have to dump them in fire sales. And all the Spanish sovereign paper now used as collateral in everything from repos to derivatives transactions, would no longer qualify – meaning more scrambling for alternatives and fire sales.

Worrying noises out of Spain in the last several days have not put investors off their feed quite yet. But if a consensus emerges that Spain could be downgraded, the rush to the exits could get quite ugly. Corporates are right to take the money and run.