Any deal between the Irish government and the European Union and International Monetary Fund to resolve Ireland’s financial crisis is ultimately aimed at cutting short the turmoil in sovereign bond markets that policy makers fear could one day price Portugal or even Spain out of global credit markets.
Portugal, which like Ireland is a small economy with a relatively illiquid debt market, is seen as the next country likely to find itself in the sights of bond traders.
“If you see an Ireland package, we would hope that contagion effects would be limited,” said Ian Harnett, managing director at Absolute Strategy Research, a financial consulting firm. “But investors appear to be picking off weak countries one by one,” leaving Portugal “very much at risk.”
Irish bond yields soared in recent weeks on mounting worries about the government’s ability to meet the cost of rescuing its crippled banking sector. European officials upped the pressure on Ireland to apply for a rescue as turmoil spread to other peripheral bond markets, pushing up borrowing costs for Portugal and, to a lesser degree, Spain.
Post a Comment