Sharply rising bond market prices this week are implying a near-70% probability of default for Portugal on a five-year time horizon.
The yield on 10-year Portuguese government bonds rose above 15% yesterday, the highest level since the euro launched in 1999, while yields on 3-year notes rocketed up to nearly 21%.
Standard & Poor’s downgraded the country’s credit rating to junk status January 13, and now Portugal’s spiking bond yields mean the country won’t be able to access debt markets until at least 2013.
Head of Portugal’s industry confederation Antonio Saraiva said the country needs an additional 30 billion euros in extra European Union and IMF aid, according to CNN Money.
Investors are worried the Portuguese government may seek to use a deal Greece has proposed to bond holders that would enable debt writedowns of more than 50% and up to 70% as a template for how to deal with Portuguese debt.
Portugal had debt of €162 billion last year, which represens 101.6% of GDP according to the European Commission.
However analysts say Portugal is unlikely to default in the near term.
“Regardless of the future complications, it is unlikely that the government will opt to default in the next few months,” Eurasia Group analyst Antonio Barroso told CNN Money.
However, the government may need to seek additional bailout money in the second half of the year, depending on its progress on fiscal reforms and the outcome of the eurozone crisis, Barroso wrote in a note to clients.
The Europe AlphaDEX Fund (FEP, quote) was unchanged at $23.09 at close of trading Friday, while the iShares Msci Emrg Mrkt Fncl Sctr Indx Fd (EMFN, quote) was down 1.43% to $24.16.