The markets can´t buy rest. If Greece was last week´s focus of attention, this week all eyes are on Portugal and, by extension, the peripheral countries. After Moody´s knocked Portugal´s rating, putting their credit rating in speculative or junk bond range, the peripheral country debt crisis has re-germinated with great force.
Portugal was the first country affected, but they were not the only one. The Portuguese risk premium, measured by the difference between Portuguese and German 10-year bonds, shot up yesterday from 801 to 1,013 basis points. An historic record since the introduction of the euro. The cost of insuring Portuguese debt has also risen to a record high.
Credit default security (CDS) rallied from 771 to 917 basis points, the third highest in the world.
But the consequences of the rating cuts extend further. Yesterday the Portuguese treasury auctioned 3 month bonds for 848 million euros, which met its goal of securing between 700 million and 1 billion euros. It did this at an interest rate of 4.92%, which was greater than the first placement which was at 4.86%.
"All the confidence gained during the past week after approving the Greek austerity plan has been volatilized with the lowering of Portugal´s credit rating. This made us pay more interest and demand for Greek debt has declined as a result," commented Soledad Pellón, market analyst for IG Markets.
Translated and Edited in English by Brandon Dyches and Jose L. De Haro
