Another weekend, another euro-zone country in crisis. This time the bond market, having forced Ireland into accepting emergency funding, is targeting Portugal.
According to Jose Manuel Barroso, the European Commission president, Portugal has not asked for a bailout. Yet. The Portuguese are still trying to tough it out. Fernando Teixeira dos Santos, the country's finance minister, even went as far as saying yesterday that EU governments cannot impose a bailout on his country.
Politicians can say what they like, but the bond market has a mind of its own. Yesterday, German government bond yields fell while those of Portuguese and Spanish bonds rose on mounting anxiety over where the euro-zone crisis might spread to next.
Portuguese 10-year bond yields, at more than 7 per cent, are already above the level at which Ireland and Greece stopped accessing bond markets and well above the estimated 5 per cent Lisbon would pay to borrow from the European Financial Stability Facility.
The European Central Bank (ECB) has concentrated its bond-buying operations on Portuguese debt this week, a trader said.
"There are those who think that the best way to preserve the stability of the euro is to push and force the countries that at this moment have been more under the floodlight to that aid," Mr Teixeira dos Santos told Jornal de Noticias, a Portuguese newspaper. "But that is not the vision or the political option of the countries that are involved."
Portuguese bonds have dropped as the government struggles to convince investors it can avoid the fate of Ireland and Greece, which have already asked for EU bailouts this year. A majority of euro-region governments and the ECB are putting pressure on Portugal to accept a bailout to prevent contagion spreading to Spain.
Ireland was forced to ask for a rescue on Sunday, eight days after officials there were pressed in an ECB conference call to accept emergency aid.
Portugal's finance minister says his country does not need a rescue because its position is not as serious as Ireland's.
"It has been clear that what we are betting on is on ensuring conditions for Portugal to continue financing itself in markets to ensure the functioning of public administration, and also to be able to regularise the financing mechanisms for the private sector, through the financial sector," Mr Teixeira dos Santos told the paper.
Some analysts even think that no one is bothered with Portugal any more. With a bailout of Portugal inevitable, it is just a question of when, not if, Spain will come into line as the next victim.
"The market is really focused on Spain rather than Portugal. Most people think Portugal accessing funding is inevitable," said Nick Stamenkovic, a rate strategist at RIA Capital Markets.
The 10-year Spanish yield spread over Bunds hit a new euro lifetime high yesterday, with 10-year yields over 50 basis points higher over the week at 5.25 per cent.
The euro fell to a fresh two-month low against a broadly recovering dollar on the peripheral concerns.
Trading was likely to remain subdued into the weekend after Thursday's US Thanksgiving holiday.
Euro-zone money supply growth slowed last month, but loans to the private sector grew at a faster rate, the ECB said. As for next weekend, the target is anybody's guess. Belgium, anyone?
* with agencies