Portuguese Bonds Slump on Bets Government Will Request Bailout

Amid crisis, Portuguese Facebook youth takes to streets (AP):

LISBON, Portugal – Portugal’s disgruntled Facebook generation, inspired by a pop song, marched in a dozen cities Saturday to vent its frustration at grim career prospects amid an acute economic crisis that shows no sign of abating.

Some 30,000 people, mostly in their 20s and 30s, crammed into Lisbon’s main downtown avenue, called onto the streets by a social media campaign that harnessed a broad sense of disaffection. Local media reported thousands more attended simultaneous protests at 10 other cities nationwide.

A banner at the front of the Lisbon march said, “Our country is in dire straits.” Another said, “We are the future.” The Lisbon march was festive and raucous, featuring brass bands, drum combos and small children with balloons. Middle-aged parents also turned out.

(Bloomberg) — Portuguese 10-year bonds had their biggest weekly slump in four while Greek and Irish debt of similar maturity also fell on speculation European leaders won’t prevent a worsening of the region’s sovereign debt crisis.

The yield on Portugal’s five and 10-year bonds reached euro-era records this week on bets the nation is nearing a request for financial aid from the European Union and the International Monetary Fund. The declines widened the premium, or spread, that investors demand to hold five-year Portuguese notes instead of benchmark German bunds, by 66 basis points in the week to 548 percentage points. Spanish 10-year bonds fell after the nation’s credit rating was cut by Moody’s Investors Service.

“Portugal is clearly the most vulnerable of the peripheral nations in Europe at the moment — there’s no doubt about it,” said Nick Stamenkovic, an Edinburgh-based fixed-income strategist at RIA Capital Markets Ltd., a broker for banks and investors. “Some of these smaller peripheral nations are paying punitive rates, and the rates are going up.”

Yields on 10-year Portuguese bonds surged 12 basis points in the week to 7.60 percent as of 5 p.m. in London, 10 basis points lower than the euro-era record reached March 9. The five- year yield climbed 23 basis points to 8 percent.

Concern that Europe’s most indebted nations will be unable to make bond repayments has driven borrowing costs to record highs. European Union leaders are working to expand their bailout efforts in time for the conclusion of a meeting on March 24-25, which German Chancellor Angela Merkel has said will produce a comprehensive package of measures.
‘Chronic Problems’

“These are chronic problems that are going to take many years to resolve,” Nouriel Roubini, the economist who predicted the global financial crisis, told Maryam Nemazee on Bloomberg Television’s “Countdown” in London. “The idea that they are going to be resolving them in March with an agreement is far- fetched.”

When asked by reporters in Lisbon yesterday whether his country was preparing to request a European Union bailout Portugal’s finance minister Fernando Teixeira dos Santos said that the region’s leaders must understand the “seriousness” of the debt crisis.

The country may need to raise funds by issuing a new two- year note as early as next month to curb its borrowing costs as yields on longer-dated bonds have “become unsustainable,” UBS AG said in an e-mailed note.
Bunds Advance

Spanish bonds fell this past week after Moody’s lowered the country’s credit rating by one step to Aa2 and said it may make further downgrades, citing costs to shore up the nation’s banks. The 10-year yield on Spanish bonds rose four basis points in the week to 5.43 percent.

German bonds advanced in the week, lowering the yield on the 10-year bund, Europe’s benchmark government security, by six basis points to 3.21 percent. Two-year note yields fell 11 basis points to 1.65 percent, the first decline in three weeks.

Italian 10-year bond yields dropped two basis points to 4.87 percent, after breaching 5 percent on March 9 for the first time in more than two years.

Spanish bonds may decline next week before a sale of bonds maturing in 2021 and 2041 on March 17. Investors bid for 1.54 times the 10-year securities on offer at a sale of the debt on Feb. 16, the lowest bid-to-cover ratio for the securities since September 2008, according to data compiled by Bloomberg.

German bonds have handed investors a 1.9 percent loss this year, compared with 4.4 percent for Portuguese securities, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt has returned a 1.2 percent profit.

By Garth Theunissen and Paul Dobson – Mar 12, 2011 8:00 AM GMT+0100

Source: Bloomberg

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