Investors are betting that after cap-in-hand Greece comes Portugal, selling off its stocks and bonds in the belief that the euro zone laggard cannot avoid a default without a second bailout. While borrowing costs have fallen for debt-ridden Spain and Italy as well as bailed-out Ireland on the back of a huge infusion of low-cost loans from the European Central Bank, Portugal's have shot up, setting it on a path towards bankruptcy.
The rot really set in two weeks ago after Standard & Poor's downgraded 15 euro zone countries, putting Portugal in the "junk" category, along with Greece. That shuts it out from tapping capital markets in the forseeable future and makes its task of meeting future debt repayments even tougher.
Since then, the rise in both government bond yields and the cost of insuring debt against default has been relentless. This is the opposite of what has happened in Ireland, which was bailed out in November 2010 just six months before Portugal received a 78 billion euro bailout from international lenders.
"If we look at where bond yields are for Portugal it makes it impossible for Portugal to access debt markets in 2013," said Nikolaos Panigirtzoglou, a rate strategist at J.P. Morgan. "It's a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we're going to get a second bailout for Portugal later this year."
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