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Portugal Debt Insurance Costs Hit High After Downgrade

Reuters with CNBC.com
Wednesday, 6 Jul 2011 | 8:10 AM ET

The cost of insuring Portuguese debt against default hit a record high on Wednesday and yields on Portuguese bonds spiked after Moody's cut the country's credit rating to junkand warned it may need another bailout.

Portugal
Davis McCardle | The Image Bank | Getty Images
Portugal

Five-year credit default swaps (CDS) on Portuguese government debt rose 82 basis points to 850 bps, according to data monitor Markit, Reuters said. This means it costs 850,000 euros to protect 10 million euros of exposure to Portuguese bonds.

The cost of insuring other peripheral debt against default also rose as Moody's move reinforced concerns that contagion may be spreading to other heavily indebted countries.

Five-year Irish CDS rose 42 basis points to 780 bps and the cost of insuring, according to Reuters.

Spanish debt against default gained 21 basis points to 297 basis points. The Italian equivalent also firmed 24 basis points on the day to 220 bps.

Meanwhile prices of two-year Portuguese bonds tumbled sending yields 121 basis points higher to 14.60 percent, while the country's ten-year yields rose 50 basis points to 12.68 percent, Reuters said.

“The debtor nations who are overleveraged should be allowed to go bust. What the politicians are doing now is trying to solve a debt crisis by issuing more and more debt. This is not a sane way of solving a debt crisis. History has shown that this method has never worked,“ Puru Saxena, Chief Executive of Puru Saxena Wealth Management told CNBC.

“Judgement day will come sooner of later and as far as I’m concerned Greece is already bankrupt and Portugal is heading that way and a lot of other countries are also in the queue,” he said.

Contact Europe: Economy

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