The next shoe to drop

by Jamie Chisholm

Financial Times
January 23, 2012

While the market is focused on Greek debt negotiations, some are already looking beyond Athens at the next possible “shoe to drop”.

Even if Greece can agree a deal with its creditors that will avoid a default and save the broader market from fretting about the continent’s financial system, it may mean only that attention will turn to Portugal.

Yields on Lisbon’s 10-year paper pulled back a bit in early European trading on Monday, but remained above 14 per cent. Five-year notes yield more than 18 per cent.

The market appears to be saying a Portuguese default is getting a lot more likely. But there is a strand of silver lining to this cloud.

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