The Portuguese political crisis appears to have been resolved for the moment, but the concrete problems of managing the fiscal adjustment program remain on the table. The market may benefit in the short term from the reduction in political risk, but the assessment of macroeconomic risks will prevent the spread from closing beyond the lows already achieved.
However, the hypothesis of requesting a precautionary program to replace the one expiring in July 2014 seems premature to us: if there is a recovery in the cycle, the government yield curves of the peripheral euro countries and not just the Portuguese one, could move towards a real normalization.
From an operational point of view, we prefer steepening positions on the Portuguese curve on the 5/10 year segment which are less exposed to issuer risk than spread positions.
Download the pdf with the analysis of the Intesa Sanpaolo study centre
Attachments: Reconquistaportoghese.pdf
