Portugal reaches new high on default concerns

Portuguese credit default swaps reached new highs today after investors fear that it could become the next European sovereign credit to default following S&P’s downgrade to below-investment grade last week. According to Market News International,

Credit default swap contracts on Portugal climbed 62 basis points to 1,240, signalling a 64 percent probability of default within the next five years, according to the financial information firm Markit.

Yields on Portugal’s 2-year notes climbed 9 basis points to 15.24%, while its 10-year bond yields rose 5 basis points to 14.30%.

As further explained in the Financial Times,

The markets are pricing in a 65 per cent chance that Portugal will default over the next five years, according to credit default swaps as these instruments, which protect investors from default, leapt to record highs this week.

Portuguese bond prices have slumped to levels considered by many investors to be in default territory. Bond prices for benchmark 10-year debt were trading at 52 per cent of par, recovering from levels below 50 per cent on Monday.