SELDOM HAS A sovereign benchmark bond been awaited with such eagerness and apprehension as last month’s 10-year issue from Portugal. Following the disastrous aftermarket performance of Greece’s €8 billion colossus in January, the general consensus was that Europe’s capital market – and by extension the euro economy – could ill afford another debacle. Apparently a spectacular success at first, when it generated an order book of €25 billion, the Greek benchmark was bayoneted in the secondary market by hedge funds, widening within days by more than 50 basis points from its launch spread of 350bp over mid-swaps.
It was not just the performance of the Greek bond that had left Portuguese bonds and equities looking distinctly off-colour by early February. First, the government’s 2010 budget proposals included an upward revision of 2009’s budget deficit to 9.3% of GDP, which was 1% higher...
