Lisbon bonds under pressure

Portugal just can’t shake off its bears. The nation’s shorter-term notes are under-performing their counterparts across the eurozone even as a recovery in stocks and oil prices boosted demand for higher-yielding assets.

The extra yield, or spread, that investors get for holding Portuguese two-year debt instead of similar-maturity notes of Germany climbed for a second day yesterday.

The country’s two-year yields are more than 1 percentage point higher than those in neighbouring Spain, whose leaders have been unable to form a government after inconclusive elections in December.

Portuguese bonds are weighed down by political challenges to austerity policies. That’s diluting the impact of ECB asset purchases that otherwise support bond prices and have pushed down shorter-dated yields across the region, except for Greece’s, to less than or near zero.

Coalition politicians here have claimed that a hung Dáil could lead to similar uncertainty.

Germany sold 10-year bonds to yield 0.26% yesterday, the least since April, while market prices signal Portugal would be charged about 1.25% to borrow for just two years. ECB president Mario Draghi earlier in the week said the institution will take measures if financial turmoil threatens its policy goals, without being more specific about the options for quantitative easing.

“Despite the recovery we’ve seen, the selloff trend is not over yet,” said Daniel Lenz, lead market strategist at DZ Bank in Frankfurt.

“Portugal definitely stands out. Yields point to this highly extended risk that investors have started pricing in.”

Portugal’s two-year note yield increased five basis points, or 0.05 percentage point, to 1.25% at one stage yesterday. The yield on Spain’s two-year note fell three basis points to 0.03%, and is little changed at minus 0.51% for Germany’s. Portugal’s 10-year yield reached 4.53% last week, the highest since March 2014. n Bloomberg