Financial Times
January 10, 2011
Mounting concerns over eurozone sovereign debt and emerging market inflation left investors on a defensive footing at the start of what promises to be an eventful week.
Increasing speculation that Portugal could follow Greece and Ireland in seeking an international bail-out drove the euro to a four-month low against the dollar below $1.29, and sent the cost of insuring peripheral eurozone debt against default towards record levels. Portuguese government bonds reversed sharp early falls amid reports of buying by the European Central Bank, although the 10-year yield was still above the crucial 7 per cent level late in the day.
“It took Greece 16 days and Ireland 20 days to request European Union/International Monetary Fund aid after their 10-year yields breached the 7 per cent level,” said Gary Jenkins, head of fixed income at Evolution Securities, although he noted Portuguese yields had been through the 7 per cent barrier previously and then retreated.
“With €20bn of issuance this year, unless longer dated yields stabilise then the market may well start to expect that Portugal will have to seek EU-IMF assistance, and it might then become a self-fulfilling prophecy.”
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