MARKETS:PORTUGUESE BOND yields yesterday climbed to euro-era records amid concern a Greek debt writedown being negotiated with investors may force a similar deal to ensue in Portugal.
The yield on the nation’s benchmark 10-year bonds rose to 17.39 per cent, while two-year note yields increased to as much as 21.47 per cent. Paying more to borrow for shorter periods reflects declining investor confidence in Portugal’s creditworthiness.
“Some type of private-sector involvement for Portugal is a likely event and that is probably one of the key risks,” said Jim Cielinski of Threadneedle Asset Management.
“Portugal has been trading off quite markedly.”
Portugal’s 10-year yield is the second highest in the euro zone after Greece and the spread over German bunds widened 224 basis points to 15.6 percentage points, also a euro-era record. Credit-default swaps to insure $10 million (€7.62 million) of Portuguese sovereign debt for five years rose to an all-time high of $4.25 million in advance and $100,000 annually. The cost implies a more than 72 per cent chance the government will default in that time.
Greek bondholders are being pushed to cede more ground after agreeing in October to take a 50 per cent cut on the face value of more than €200 billion of debt.
“The concern for the market is that however the Greek situation resolves itself may be a template for what happens with Portugal,” said Gary Jenkins, a director of Swordfish Research in London.
The ECB bought Portuguese government bonds yesterday, according to three people with knowledge of the transactions.
Portugal aims to return to bond markets at the end of 2013 and Portuguese prime minister Pedro Passos Coelho has said it will adhere to targets set in the €78 billion bailout agreed last year. But if austerity measures fail to lower borrowing costs, international lenders may have to offer more support, he said. – (Bloomberg)