As the euro zone continues to scrabble to fix the Greek debt crisis, analysts have started fretting over whether Portugal may fail to manage its own cripplingly high borrowing rates. But there are great babies being thrown out with the bathwater.
Global stocks are moving to the upside today on news that China’s manufacturing sector expanded slightly in January, easing fears that the world’s second-largest economy will endure a painful contraction. Meanwhile in Portugal, yields fell as the treasury sold 1.5 billion euros ($2 billion) in bonds. Fears that Portugal will seek a bailout, however, remain high.
Sharply rising bond market prices this week are implying a near-70% probability of default for Portugal on a five-year time horizon.
Italian Prime Minister Silvio Berlusconi agreed to speed up economic reforms today, in hopes of enticing the European Central Bank to prop up the world’s eighth largest economy.
Once again, the tone in the European credit markets reflects anything but relief that Greece has been saved. More pressure on Italian banks in particular.
The “Club Med” effect keeps driving traders away from debt throughout Europe’s southern tier. This time, Portugal is the catalyst of the day.
While the headlines surrounding Greece have been relatively bullish, the price of insuring euro zone debt against default has soared back to historic levels.
Traders have seen a material jump in borrowing costs in the debt-plagued countries on the edge of the euro zone. This week, Spain is the focus again.