By Paul Hu
Starting this week two days before the financial market performance, the Irish government to seek assistance of the “double-edged sword” effect began to appear: although this may be found in the country’s financial crisis, a solution, but also to investors in the country the debt situation in the euro area as a whole to re-recognize that the situation might be worse.
Investors are increasingly worried about a domino effect of the debt crisis spread in Europe, Portugal is now considered to be the next most likely to distressed countries.
And a few days ago, like the Irish, the Portuguese government is busy with the recent rumor. President of Portugal has come forward, said the Portuguese did not apply at present do not need external assistance. But this is clearly not enough to dispel investor concerns.
Tuesday, 10-year German government bonds over the same period the Portuguese government bonds and the yield premiums rose by 27 basis points to 434 basis points. Compared with the recent high point, the premium has narrowed, but still more than the level last week, indicating that investors believe the debt increases the risk of default.
Although the Portuguese banking sector problems are not as big as Ireland, Greece, its budget deficit is also not as serious, but the country does suffer from “high deficits, high debt and low growth,” the difficult situation. Many people expect, Portugal debt crisis sooner or later the problem.
Last year, Portugal’s budget deficit-GDP ratio to 9.3% target ceiling for the euro area is 3%. Citigroup noted that this year, Portugal’s deficit has not been significantly improved, even with Greece, Ireland, Spain and other countries outside the euro area compared.
Spain will be very serious if the accident
In some, Portugal is a small country, even if not forced to help bring about systemic risk. IMF’s Lipsky has said that as long as there is demand, Portugal, IMF has existing credit facilities. However, the problem is even more so the Spanish investor nerves. Spain is the euro zone’s fourth largest economy, its economic size of more than Portugal, Greece and Ireland combined.
Baring Asset Management head of fixed income and currency Wilde said that if Spain needs to be assistance, the market’s overall concern for the euro area will increase. Bond market has been first to respond, on Tuesday, the Spanish government bonds and German government bonds over the same period increased yield premium of 27 basis points to 236 basis points, since the advent of a new high for the euro, but also far more than in May this year a record 221 basis points of the previous record .
A recent Treasury auctions in Spain confirmed the concerns of investors. 23, Spain, three months and six months of issuance of bond yields sharply higher than the previous issue of raising the cost has nearly doubled, and the premium bond yields over the same period in Germany is also a record high. Among them, the three-month Treasury yields from the Oct. 26 issue of the time increased to 1.743 percent 0.951 percent, six-month yields rose to 1.285 percent from 2.111 percent.
Spain is also the domestic stock market volatility recently. Only 22 and 23, Madrid, close to 6% cumulative decline in the stock market, since early this month, the country’s stock market decline has been more than 10%.
The industry said the recent sell-off investors move to the Spanish government bonds should pay close attention. If the EU and IMF assistance to Greece, Ireland and Portugal and other small countries can cope with it, to save the Spanish may be beyond their grasp. Once the forced debt restructuring, will likely give investors and the European banking sector immeasurable impact.
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