PARIS (MNI) – The cost to insure Portuguese debt against default
climbed to another new record on Wednesday as worries over Greece’s
delayed debt restructuring continued to increase market pressure on

Portugal’s 5-year credit default swaps rose above the 1300-level
for the first time, climbing 31 basis points to 1,310. That level is
about the same where Greek CDS were quoted last spring.

In the bond market, yields on 10-year Portuguese government debt
climbed by 43 basis points to 14.62%.

Investors worry that Portugal could be next in line for a second
bailout and that the haircuts in Greece now being forced on private
creditors by official lenders could be repeated for Portuguese debt.

“Just the way we are now talking about private sector involvement
in a second bailout for Greece, the fear is we could soon be talking
about the same thing for Portugal,” said Chris Scicluna, an economist at
Daiwa Capital Markets in London.

Greece’s private sector creditors met in Paris on Wednesday to
determine the next step in the negotiations, according to Frank Vogl, a
spokesman for the Institute of International Finance, which is
representing private creditors in the Greek talks. Vogl said in an
e-mail that he was not sure if a statement would be issued.

The Greek talks have stalled over disagreements about interest
rates to be paid on new sovereign bonds exchanged for the old ones, and
amid pressure for the European Central Bank also to accept losses on its
Greek bond holdings.

Traders said that the ECB has not been in the market buying
Portuguese government debt recently, even though the market is very thin
and a modest amount of buying could have a big impact. They said the
ECB’s absence has raised concerns that it might be awaiting developments
in the Greek talks before adding further to its holdings of peripheral
Eurozone debt.

Forcing the ECB to take losses on its Greek debt “would have a
negative effective on countries like Portugal because it would put the
whole Securities Market Program into question,” said Gavan Nolan, an
analyst at Markit, the London-based financial information firm.

The ECB has purchased more than E200 billion of bonds of struggling
Eurozone countries through its SMP program since 2010.

Portugal’s economy is expected to shrink by 3.1% this year,
according to the country’s central bank, and investors worry it won’t be
able to return to the capital markets next year as planned. Portugal has
E9 billion in debt coming due in September 2013.

–Paris newsroom, +33142715540;

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