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Ireland and Portugal may now find themselves competing for Europe's finite cash reserves. INPHO/Morgan Treacy
Bond Markets

Our new economic kindred spirit: Portugal

The cost to Portugal of borrowing money over 10-years also touched 6.5% yesterday, and they’re auctioning on Thursday.

WHILE THE PRICE of Irish government bonds was hitting new records yesterday, the similar cost of Portuguese debt was also hitting a new all-time record, with 10-year bonds being traded second-hand for 6.439% shortly before close yesterday.

Markets closed with the yield standing at 6.394%, easily surpassing the previous all-time record reached in May when the interest rate demanded by lenders to finance the Portuguese state reached 6.331%.

In a similar parallel with Ireland, the price has been hauled back in this morning to under 6.37%, an almost identical rate to Ireland – a signal, perhaps, that the European Central Bank is moving to hoover up any interest, or that investors considering Portuguese debt are preoccupied by this morning’s ongoing NTMA auction of fresh Irish debt.

This can likely be attributed to the moves by Standard & Poor’s and Fitch to both give the European bailout fund a AAA credit rating, meaning that should either country default, the bond repayments will be made in full.

Portugal will also be going to the bond market this week, with its treasury managers trying to issue another fresh €1bn in debt tomorrow – and the measures also come as the government seeks to slash the budget deficit.

Portugal’s socialist government is trying to cut its deficit from 9.3% of GDP last year to 7.3% this year.

The parallels in the two PIIGS economies may extend to a grim conclusion, however; if the yields on both bond auctions require more expensive repayments that the governments can manage, the two may have to clamber for priority over the finite European and international cash reserves for assistance.

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