European peripheral debt is under attack. Yield on the Portuguese 10-year bond yield spiked as high as 4.425% from a low of 3.532% earlier today. Yield is up from 2.654% in January.
Portugal 10-Year Government Bond
Portugal Bears Brunt of Bond Selloff With Yield at 2014 High
Bloomberg reports Portugal Bears Brunt of Bond Selloff With Yield at 2014 High.
Portugal’s 10-year bonds plunged, pushing the yield to the highest level since the country exited its bailout program in May 2014 and adding pressure on Prime Minister Antonio Costa less than three months after his minority Socialist government took office.
The European Commission last week told Portugal to adopt measures to ensure its 2016 budget complies with the provisions of the EU’s stability and growth pact, while stopping short of rejecting the plan. The government already had to provide additional measures worth as much as 845 million euros ($957 million) to the Commission after submitting the initial draft of the budget on Jan. 22.
The rise in yields isn’t linked to the discussion on the budget, Minister of the Presidency Maria Marques told reporters in Lisbon on Thursday. “This instability isn’t related to particular circumstances as the budget was approved by the European Commission and this is just a coincidence in terms of timing,’’ Marques said.
Portuguese debt led Thursday’s selloff among peripheral nations in the euro area, with Italian, Spanish and Greek bonds also dropping.
Portugal Debt-to-GDP
Does anyone really believe Portugal can pay that back under existing eurozone rules?
Deflation Fighting Madness
It’s totally crazy but ECB president Mario Draghi strives to hit an inflation target of “close to but not exceeding 2%”. The market now expects Draghi to cut the ECB’s rate further into negative territory in March, even though negative rates are decidedly bad for banks.
For discussion, please see Currency Wars: Riksbank Rattles Markets With Rate Cut Deeper Negative; Treasuries and Gold Soar, Société Générale Drops 13%, Deutsche Bank 7%.
Mario Draghi needs another “whatever it takes” moment.
However, this time he’s fighting bail-ins and increased euro skepticism in Spain, Italy and France. Italy, Spain, France, and Portugal all struggle with budget concerns and a refugee crisis threatens growth in all of Europe.
Would another “believe me it will be enough” speech do anything more than spook the market?
Mike “Mish” Shedlock
