Interest on 10-year bonds over 3%
The interest to be paid on Portuguese sovereign bonds has climbed over 3% for the first time in five years.
Portuguese sovereigns are under intense pressure on International markets because investors expect European Central Bank monetary policy to tighten in a bid to bring inflation under control. In Portugal, for example, inflation because of the energy crisis has pushed the price of a litre of diesel fuel over €2 for the first time.
Moreover, mortgage rates have also continued to climb with Euribor six and 12 month rates set at 0.175% skyrocketing by 6.7 base points to their highest in over a decade. Meanwhile inflation in May hit 8% — the highest since 1993.
Yesterday (Tuesday), the interest rates on 10-year bonds rose to 3.024%, up 2.5 base points on Monday, which had not been seen since 14 July, 2017 according to Reuters. Around December 2020 they had fallen to just below 0%.
Interest rates rose across all maturities, with interest on five and two year bonds hitting 2.401% and 1.5% respectively. Germany, Italy and Spain also saw interest on their 10-year bonds rise to heights not seen since 2014: 1.647%, 4.2% and 3% respectively.
It means that the cost to Portugal of financing its debt through the interest on bonds that has to be paid to investors is climbing. In 2011, when interest rates exceeded 7%, the government did not have the sustained wherewithal to cope with such high rates, and investor confidence dried up. The result was that the government could no longer finance its day-to-day borrowing needs and had to call in the IMF.