Portuguese Stew: 10-Year Bond Yield Spikes to 7.84%; Portugal's President Once Again Pleads for "National Salvation" Agreement

Yield on the Portugal 10-Year Bond soared as high as 7.84% before settling at 7.51%, up a significant 61 basis points. 



President Once Again Pleads for "National Salvation" Agreement

On account of action in the bond market Portugal President Urges Quick Party Accord.

President Anibal Cavaco Silva said he wants Portugal’s two ruling parties and main opposition group to quickly reach an agreement of “national salvation” and implement a bailout program as the nation’s bond yields surge.

“Talks between the political parties should be concluded in a very short period of time,” the president’s office said in a statement on its website. Silva met with the party leaders yesterday to explain the terms of such an agreement and all showed willingness to start discussions as soon as possible, according to the statement.

“The Socialist Party is available to start a dialogue with all the political parties,” party leader Antonio Jose Seguro told parliament today. The Socialists have ruled out the possibility of supporting or taking part in any government resulting from the current distribution of seats in the assembly and Seguro reaffirmed calls for renegotiating aid package terms.

The Socialists have voted alongside the governing coalition on certain key policy decisions including the European Stability Mechanism treaty, the fiscal compact and the country’s budget framework law. The party led Coelho’s Social Democrats by 12 percentage points in a poll published today and has called for early elections.

Silva, who has the power to dissolve parliament, said on July 10 that “the start of the process that leads to elections should coincide with the end of the financial aid program” in June 2014. The Social Democrats and the conservative CDS party now have a majority in parliament and the government’s term ends in 2015.

Zero Percent Chance Crisis Ends in June 2014

There is no chance the Portugal's financial aid program ends in June of 2014 as purportedly expected. Portugal is going to need another bailout and the bond market recognizes that fact.

Interest on the bailout loan is 3.2%. At current yields Portugal would effectively be locked out of regular bond markets to finance its debt.

Given another bailout is coming, demand for Portuguese bonds slumped.

Pot of  Portuguese Stew

Recent bail-in talk, for which Germany opposes has likely exacerbated the situation (see German Officials Liken EU Banking Power Proposal to "Nazi Enabling Acts"; What Germany Can Expect; What About the UK?)

This pot of Portuguese Stew is about to boil over.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com