Portuguese debt yields rise after court rejects labour bill
LONDON Aug 30 (Reuters) - Portugal's bond yields rose on Friday after its constitutional court rejected a bill that would have allowed public sector workers to be fired, dealing a blow to the austerity programme set out under Lisbon's bailout.
The bill was considered important because of its potential longer-term structural effect on spending cuts. The ruling alarmed investors as it suggested the court could throw out more of the government's planned savings measures.
Portuguese bonds have been relatively stable this month after a political crisis fuelled a sharp sell-off in July which took 10-year yields above 8 percent - a level considered unsustainable over the long term.
"This was a measure which was implying some sort of saving for the government ... so basically it is credit-negative for Portugal," one trader said.
Ten-year yields rose 15 basis points on the day to 6.82 percent, while two-year yields rose 21 bps to 5.44 percent.
Other lower-rated debt also dipped, with Spanish yields 1.7 basis points higher at 4.56 percent and the Italian equivalent 1.2 bps higher at 4.39 percent.
The aversion to risk in the euro zone bond market benefited German Bunds which were poised for their biggest weekly gain since mid-July.
"Ahead of the long weekend and with the end of the month, we are usually positive on core bonds," Piet Lammens, strategist at KBC said.
Bund futures were up 27 ticks at 140.87. They got a lift from data showing German retail sales unexpectedly fell in July.
"It doesn't exactly back up the idea that things are recovering," a second trader said about the data.
"We have got month-end, we have got a long weekend in the (United) States and, with Syria in the background, I can't see why people would want to go home particularly short (Bunds) just in case something happens."
A decision on Thursday that Britain will not join any military action against Syria dealt a setback to U.S.-led efforts to punish Damascus over the use of chemical weapons against civilians.
Investors would look at euro zone data this session, including inflation and unemployment figures, as they try to position for next week's European Central Bank meeting.
"From the ECB, we are expecting very little. The pressure for the ECB to do more has faded away with the better economic data," Lammens added.