- Portuguese-German yield spread widens to most since July
- Nation's stocks are biggest losers among 24 developed markets
From bonds to stocks, Portugal’s markets are once again under pressure.
The extra yield that the nation’s 10-year government bonds offer over German securities has widened to 2.22 percentage points, the most based on closing prices since July. Portuguese shares were the worst performers among developed nations on Monday, dragging the benchmark index down to levels last seen a year ago. Indicators of bank creditworthiness slipped.
Portuguese Prime Minister Antonio Costa said Friday he was concerned by the central bank’s treatment of bondholders from Novo Banco SA after some were forced to take losses on their investments. He added the decision could harm confidence in the nation’s financial system.
Given “what’s happened in some of the banks over there, investors have become wary,” Scott Thiel, BlackRock Inc.’s deputy chief investment officer for fundamental fixed income, said in a Bloomberg TV interview. He said bond markets have reacted to the political situation “relatively negatively,” driving yields higher.
Portugal’s markets have been weathering storms for months. Novo Banco is the so-called good bank that emerged from the breakup last year of Banco Espirito Santo SA. Portugal also suffered a political crisis when the ruling coalition lost power to the minority Socialist government in November.
The yield on Portugal’s 10-year bond rose four basis points, or 0.04 percentage point, to 2.77 percent as of 4:50 p.m. in London, after climbing to 2.78 percent, the highest since Nov. 13. The 2.875 percent security due October 2025 fell 0.30, or 3 euros per 1,000-euro ($1,089) face amount, to 100.86.
Stocks followed suit, with the benchmark PSI 20 Index tumbling 3.7 percent on Monday, the most among 24 developed markets tracked by Bloomberg. The price of bonds from Espirito Santo, which plunged to about 10 cents after the Dec. 29 decision to impose losses on investors, languished at 21. They were above 90 before the decision.
Credit rating company DBRS Ltd. said Jan. 15 that it views the issue “as potentially increasing reputational risks for the Portuguese banking sector, which could impact investor sentiment and confidence in Portuguese banks.”
Portugal’s sovereign securities have been the worst performers in the euro zone this year after Greek debt, losing investors 1.1 percent, according to Bloomberg World Bond Indexes. Their German and Italian peers handed investors returns of 0.9 percent and 0.3 percent. Greek bonds shed 4.5 percent.
BlackRock’s Thiel said he still likes Portugal from a “fundamental perspective,” while Pacific Investment Management Co. money manager Mike Amey said his company is a buyer of peripheral European bonds, especially those of Italy and Spain.