Political turmoil pushes Portuguese yields to crisis levels

Portuguese bond yields rose sharply, led by shorter maturities, yesterday as a government crisis prompted investors to shun the bailed-out country, raising concerns about a renewed bout of euro zone debt trauma.

Stocks on the Lisbon bourse suffered their biggest daily fall in three years and the cost of insuring Portuguese bonds against default rose to its highest since November.

The resignation earlier this week of two ministers threatened to force an election over continued budget austerity, putting at risk Portugal’s goal of exiting its €78 billion bailout by returning to regular bond markets next year.

Portugal’s bond yields surged to levels near which it was forced to seek international aid two years ago. Two-year yields rose more than 10-year yields – a move that can suggest investor nerves about getting their money back – and brought the yield curve to its flattest since June 2012.

Prices suggested scant liquidity was exaggerating the moves, however.

Euro zone debt markets have been relatively calm since the ECB announced last year that it would step into markets under certain conditions. – Reuters