Portugal 10-year bond yield nears 4%, highest since 2017

Portugal’s 10-year government bond yield rose to 3.96% on Thursday, after briefly touching 3.97%, its highest level since March 31, 2017, in a move that could raise the cost of future sovereign borrowing.

Across Portugal’s yield curve, rates were higher by between 1.7 and almost 5 basis points. The 10-year yield was up 4.96 basis points, while the two-year yield, which is more sensitive to European Central Bank policy expectations, rose 0.3 basis points to 3.34% after trading as high as 3.37%, the highest level since October 2013.

The move came as oil climbed back above $105 a barrel, fuelling concerns that inflation could accelerate again globally. At the same time, stronger-than-expected US economic data and weak demand at a US debt auction pushed the 10-year Treasury yield to 5.145%, its highest level since the 2008 financial crisis, adding pressure to bond markets more broadly.

Oxford Economics said in a note published on Thursday that the rise in yields should be mostly temporary, arguing it reflects a repricing of expected central bank responses to higher energy prices rather than concerns about countries’ ability to repay debt. The consultancy also said Portugal is among the euro zone countries best placed to withstand higher rates, alongside Spain and Greece.

For Portugal’s Treasury, higher market yields would mainly affect future issuance rather than the stock of debt already outstanding. In its last 10-year auction on July 8, the IGCP debt agency sold €703 million at 3.439%. The state’s 2026 funding programme targets €24 billion of bond issuance, of which 77% has already been completed, leaving about €5.6 billion still to be issued.

Originally published at Eco.pt