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Portugal bonds spark fresh bailout fears

Friday 11 February 2011 - by Andrew Hickley

Fresh fears have been raised about the potential for a Portuguese bailout after the European Central Bank was forced to abandon its stance against intervening in the bonds markets as yields soared to record highs.

The yields on Portuguese 10-year government bonds rose in early trading yesterday to the highest rate since the creation of the single currency at 7.63 per cent, as the ECB in an attempt to restore confidence stepped into the market for the first time since suspending bond purchases in January.

While the intervention saw yields drop to 7.35 per cent, many analysts regard the 7 per cent interest rates that Portugal pays to investors as unsustainable.

Compounding the news, the minority Left Bloc political party declared it would table a motion of no confidence in Prime Minister José Sócrates' fierce austerity measures late on Thursday.

Wolf Klinz, the chair of the European committee set up to investigate and respond to the financial crisis, raised fears in mid-January that Portugal would have to raise €39bn ($52.7bn) during the year in order to finance itself.


Following a visit with the CRIS committee to the country, he revealed his impression that the country is determined to "go it alone" instead of reaching for a bailout.

The news also saw a fall in the euro by 1 per cent to $1.36 against the dollar, and 0.9 per cent to £0.84 against the pound.


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