The Price Of Portugal’s Debt Tells A Different Story

The media gives the sale of Portugal’s government bonds yesterday a positive spin.  The markets claimed to be relieved that the bonds were so easily covered. 

See Business Week for example –
Titled – Stocks Up As Euro Worries Ease.

But Did They Ease?

The rate to be paid has soared from 4% pre-crisis  to 6%.  

The market is pricing in an increasing risk of default.

The 3.85% April 2021 bond was sold at an average yield of 5.973%, compared with 4.171% at the previous auction in March, while the small volume of Wednesday’s sale drove the bid-to-cover ratio to 2.6 from 1.6. The average price of the 10-year bond came in at a depressed 83.66, versus 97.19 previously, a deep concession…..  WSJ

It will be domino effect when it comes.  Greece first.  Portugal second.  Ireland third.  And so on.

FT writes – 
Spain, Portugal and Ireland , so-called peripheral eurozone economies, are considered most in danger of being shunned by investors as worries persist over the health of their banks and economies. Greece is no longer a concern because it has emergency loans to cover its funding for the next two years.

Padhraic Garvey, head of rates strategy for developed markets at ING Financial Markets, said: “We are heading into a critical period as the chances rise that a government may fail to raise the money it needs.

“Spain, Portugal and Ireland are the obvious ones to worry about. Are investors willing to stay long, or buy the debt of these countries? I’m still not seeing investors willing to buy into the periphery.”

A double-dip recession would hit the economies of Spain, Portugal and Ireland particularly hard, although even core countries, such as France and Germany, could struggle to attract investors, say strategists.
(On new blogger software I cannot reverse the underline.  apologies)

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