Portugal finds no buyers for their rising debt; 10 year yields at 7.35%, which will soon trigger either a default or bailout

Portugal is losing their investor friends as debt costs soar.  Their last issuance, China seemed to take the place of their traditional debt investors.  Portugal’s cost of borrowing hit a euro-era high on Wednesday as the world has latched onto the insolvency story.  The borrowing costs for 10 year debt stands at 7.35 percent which is well above Ireland's borrowing costs when they defaulted. 

Ireland's crisis was a liability crisis as their default was cemented when they explicitly agreed to assume banking sector liabilities as Irish housing prices came crashing down.  Portugal, fortunately, does not suffer the same scale of housing woes and the government has not guaranteed banking liabilities, thus, they have been able to stave off their insolvency for much longer. 

But, financing government debt will become near impossible going forward.  Portugal will either default or go to the EFSF for a Brussels bailout.  With the genius Joe Socrates digging in his heels against a bailout (or reality for that matter), a debt default looks ever more likely. 

You can see from the two charts below that Portugal's CDS spreads are still trending upward, where Spain's CDS spreads have dropped way off their highs. 

Portugal 5 yr, USD CDS spreads

Spain 5 yr, USD CDS spreads

Via FT:

Hedge funds were selling Portuguese debt after purchasing bonds at a syndication of five-year bonds just 24 hours earlier, brokers said.

Portuguese 10-year bond yields jumped to 7.35 per cent – the highest since the launch of the euro in January 1999 and a level regarded as unsustainable for Lisbon’s struggling economy.

Richard McGuire, rates strategist at Rabobank, said: “Once again we’re back into this lull where they [EU policymakers] have promised something and they haven’t given details. I think the market will become increasingly concerned about this, exactly as they did about packages for Greece and Ireland.”

A leading investor said: “Portuguese debt costs are in danger of rising further and further as there are no buyers of the country’s debt.”


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