Is Portugal a Problem?
The yield on Portuguese 10-year bonds has risen to 3.99% as of yesterday, the highest level since March, on concerns that financial difficulties at Banco Espirito Santo will result in a flare-up of the sovereign-debt crisis.
I don’t know a ton about the subsidiary of BES that’s cash-strapped, or if there are major solvency/funding issues at the larger parent bank (as the bears portend). But, I do feel that extrapolating this out as some revival of the European sovereign-debt crisis is an exaggeration of the highest order.
After surviving bailouts of four separate countries and the Spanish banking sector, common sense tells us that—even if there are major problems at Banco Espirito Santo—Portuguese and European officials aren’t going to let it have a major negative influence on the European economy or funding markets, which after 4 years of malaise are just now starting to show signs of life.
If we want to talk about real risks to Europe, much more important than BES is the recent softening of economic data in Europe. Bottom line is the European economy remains the key beyond the very short term. Because of that, I don’t think this BES drama or the backup in Portuguese 10-year yields materially changes the outlook for the euro-zone markets.
So again, when we can get the SX7P to bottom, I’ll look to be a buyer of Europe (again) on that dip.