The main news this morning was that Portugal is to recieve its next €14.6bn tranche of aid under last year's bailout agreement, having passed the Troik's assessment.
The market’s response has been fairly muted but it is definitely relieving news from Portugal.
The Iberian country is clearly next on the market’s ‘hit list’ and this next tranche is essential for eurozone confidence in the short-term. It staves off fears that Portugal is destined to follow the same path as Greece.
Portugal is making the right noises in ruling out the need for further aid but the market is very much in wait and see mode now, the cynics will say they’ve heard it all before.
Ireland has shown that aggressive reforms can actually work and return countries to competitiveness, so there is a precedent to follow there.
The OECD’s research shows that the periphery are actually working hard on their reforms, the problem is it can take a long time for all of the benefits to emerge, time the markets aren’t necessarily willing to grant countries like Portugal.
It will be interesting to see if tomorrow’s 3-year LTRO from the ECB relieves some of the pressure on Portuguese bond yields. Portuguese yields actually increased since mid-December’s LTRO and you’d assume they will be left out in the cold this time, which is a major concern.
Richard Driver
Caxton FX Analyst
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