The fall of the Portuguese moderates

The fall of Portugal’s minority centre-right government is significant. It takes place in the face of a generalised rise in global bond yields (global re-pricing of capital theme) initiated by the expectation of Fed tightening in December. Additional ECB measures will only partly offset this effect in Eurozone markets. We remain short Spanish 10yr sovereign debt. We have considered shorting Portuguese sovereign bonds but caution against this due to a lack of liquidity. The main impact of further ECB action will be on the exchange rate. The euro will fall to parity against the US dollar.

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