Greek troubles fuel Portuguese debt fears
The cost of insuring Portuguese government debt against default hit
a new record high on Tuesday as fears over the risk of contagion from
Greece gathered pace.
Five-year credit default swaps (CDS) on Portuguese government debt rose to 316.6 basis points, up from 311 on Monday.
This brings the cost of insuring €10m of exposure to Portuguese bonds to €316,600.
The cost of insuring Irish and Spanish debt also rose.
Darren Williams, senior economist at Alliance Bernstein, told Reuters: "The Greek crisis has started to spread to the rest of the periphery and Portugal seems to be next in line. The situation there is less urgent than in Greece, but the medium-term outlook is challenging.
"Unless Europe's leaders can draw a line under the situation, Portugal could face an uncomfortable period."
Earlier, five-year Greek CDS's rose to a record 718 basis points after suggestions in Germany that aid to Greece could still be denied if Athens failed to do enough to cut its budget deficit. However, this did fall back to 686.6 basis points in the morning.
Greek bond yields at 12-year high
The yield on the 10-year Greek government bond remained at a 12-year high of 9.46pc, although the spread between Greek bonds and benchmark German 10-year bonds was slighlty down on the record 6.5 percentage points hit on Monday.
George Provopoulos, the governor of the Bank of Greece, said the country should try to surprise financial markets by shrinking its budget deficit by 5 percentage points of GDP or more this year to restore credibility.
"In order to bring about a definitive reversal of the negative trends, we must surpass ourselves and favourably surprise markets, by achieving even greater improvements than the ones projected," he said in a report for the central bank's annual assembly of shareholders.
The government's existing plan proposes chopping four percentage points off the budget deficit, which was revised upwards to 13.6pc of GDP for last year by Eurostat earlier in the month.
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