| LONDON, July 14
LONDON, July 14 Portuguese bond yields fell
further on Monday after the country's biggest bank took steps
aimed at reassuring investors of its stability, calming
peripheral debt markets after their first episode of contagion
Recent disclosures of financial irregularities at a web of
family-held holding companies behind Portugal's largest listed
bank, Banco Espirito Santo, had pummeled the country's
stocks and bond markets.
BES said last week that it had 2.1 billion euros in capital
above minimum regulatory requirements, which should be enough to
cover any losses for its 1.15 billion exposure to Espirito
On Monday BES said its board has put in place new executives
who were originally supposed to take over at the end of July,
after the Bank of Portugal brought forward management changes
there aiming at distancing the bank from the financial woes of
its founding family.
Portuguese 10-year bond yields fell 9 basis
points to 3.80 percent, retreating further from a six-week high
above 4 percent hit last week. Spanish, Italian and Greek bond
yields also fell.
Last week, the sell-off in Portuguese bonds spread to the
euro zone's other weaker members and hurt demand at Greece's
second bond sale after its 2012 default in the first significant
bout of debt market contagion in 2014.
"The markets will recover a bit," said Emile Cardon, a
market economist at Rabobank.
"But I'm a bit cautious. There's still reason to believe
that not all problems were resolved in the euro zone and we will
continue to see bouts of volatility during a fragile recovery."
Credit Agricole rate strategist Peter Chatwell said the fact
that Portugal has already done some prefunding for next year and
that there was still a residual 6 billion euros from its rescue
programme available for its banking sector should prevent an
extended escalation of the sell-off in the periphery.
"But the risk is for periphery to remain vulnerable in the
near-term until there is more information on the situation and a
plan of action," Chatwell said.
Elsewhere, Slovenian 10-year bond yields were 3
basis points higher at 3.30 percent after political newcomer
Miro Cerar led his party to victory in elections on Sunday and
indicated that he aims to rewrite a reform package agreed with
the European Union to fix his country's budget problems.
Hiccups in Slovenia's privatisation programme lifted
Slovenian bond yields in recent weeks, but some investors said
they will use that as a buying opportunity, betting Cerar can
reduce the government's 50 percent stake in the economy and cut
the budget deficit.
(Reporting by Marius Zaharia; Editing by Hugh Lawson)