Pressure on Portuguese Bonds Stirs Fears of Default


Inquiring minds are looking at a repot earlier today from ANSAmed regarding Portuguese bonds and the possibility of default. The last couple of weeks have been peaceful but the pressure on Portugal’s sovereign debt returned to record levels again today and stirred fears of a possible rescue by the IMF and EU:

The interest rate on 10-year bonds for Portugal jumped above the record level of 7.6% on secondary debt markets. Experts cited by Spanish daily El Economista assured that if rates stay over 7%, aid will be inevitable, as was the case with Greece and Ireland. The increase on the returns on Portuguese bonds caused the spread with the German Bund to jump back to November levels seen prior to the Ireland bailout, which was unable to slow the spread of the crisis.

The pressure on Portuguese bonds reflects investors’ doubts about the actual state of the country’s finances, despite attempts by the government of Jose’ Socrates to restore confidence to the markets with harsh austerity measures approved in this year’s budget.

Last October, Finance Minister Fernando Teixeira dos Santos acknowledged that if pressure on the debt exceeded the psychological threshold of 7%, Portugal would risk having to ask for help from the EU and IMF. But yesterday the socialist premier denied thinking about turning to external aid and confirmed his commitment to reducing the public deficit from 7.3% to 4.6% this year. He announced that fiscal revenue increased in January by 15.7% compared to the same month last year.

Well, it looks as if Minister Teixeira dos Santos’ hypothesis will be tested since the psychological threshold being breached.

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