For a few months, the European Central Bank's LTRO had a considerable effect on Portuguese yields, much like it did on the Italian and Spanish ones. Since the LTRO gives out loans with a maturity of up to 3 years, it was no surprise that this effect was concentrated on the shorter maturities.
This effect created a significant divergence in Portugal's yields, with the shorter maturities managing to record lower interest rates, while the longer (5, 10 years) maturities continued their upward trend, in line with the CDS and showing that the market still believed that in due time, Portugal too would be forced to restructure its debt.
Portugal, 10 year yield
Portugal, 5 year yield
In the last few days, however, something changed. In spite of the approaching February LTRO, the Portuguese 2 year yields shoot up as well.
Portugal, 2 year yield
This is worrying. It means that the market is now starting to discount the likelihood of a debt restructuring within the next 2 years, whereas for a while the yields implied that even if such restructuring was to take place, it would take place in a longer timeframe.
Conclusion
The debt market is moving towards discounting that Portugal will be in Greece's present position within the next 2 years.
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