The chart below shows the yield on Portugal’s 10-year government bond. Today alone, it’s up a massive 59 basis points to 7.28%, the highest level since December.
The country has descended into political crisis over the implementation of austerity measures designed by troika creditors at the EU, IMF, and ECB.
This morning, it’s been reported that the opposition is calling for a renegotiation of the terms of Portugal’s bailout package.
Portugal’s main opposition Socialists want to renegotiate the terms of the country’s €78 bln bailout.
— Jamie McGeever (@ReutersJamie) July 12, 2013
“I have been surprised that markets haven’t been able to brush off the effect of Portugal’s political crisis,” writes Société Générale strategist Kit Juckes in a note to clients this morning. “I didn’t (don’t) think this will be anything more than a temporary block to peripheral spreads re-tightening (along with corporate bond spreads) even though the big structural problem remains: Southern Europe is tackling real currency misalignment with deflation, which is making their debt position even less sustainable. Europe’s rates markets can edge slowly back down as they price in ‘lower for even longer than the US’. When they do, EUR/USD will drift lower again.”
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