Portugal

The Bank of Portugal’s decision to transfer €2bn of bonds from Novo Banco to ‘bad bank’ Banco Espírito Santo was not a succession event, ISDA’s European Determinations Committee ruled this week in a decision that could increase the pain for holders of the affected bonds.

With some of the lowest fertility rates on earth, Europe's periphery nations will struggle to maintain extensive social security obligations, as a shrinking number of workers shoulder the fiscal burden.

Portugal has bought back three government bonds during a volatile week for the sovereign in which it announced it would increase its issuance target for the year.

Portugal is set to buy back bonds maturing over the next three years as its yields dropped to two week lows on Tuesday.

Portugal's central bank vetoed the sale of one of Novo Banco’s non-core business units on Wednesday, arguing it was protecting the rescued lender’s reputation as its own sale progresses.

A landmark ruling this week that Novo Banco has not triggered a credit event will set a precedent for future European government interventions in banks, market participants said, but it could prompt further amendments to the International Swaps and Derivatives Association's (ISDA) credit definitions.

An external review to determine whether a credit event has been triggered on Novo Banco concluded on Monday, with market participants warning ahead of ruling that a disappointing result could undermine the credit default swap market.

Portugal is all but locked out of the capital markets after its yields shot up this week to reach their highest levels since the country exited its bail-out programme in May 2014. Ben Jaglom reports.

Portugal’s 10 year yields have risen while fellow eurozone periphery sovereigns Italy and Spain have staged a moderate rally, with bankers noting that investor fears are focused on Portugal’s political outlook.

The International Swaps and Derivatives Association has extended the deadline for an external review panel to decide whether Novo Banco has triggered a credit event, adding to the protracted deliberations over the Portuguese bank.

Established covered bond investors are often sceptical about conditional pass through deals. The structure allows the maturity of their investments to be extended, perhaps by decades. But they could be safer than long dated bullet deals.

The European Central Bank’s extra haircuts for covered bond repo, which took effect on Monday, could spur issuers to consider using conditional pass through (CPT) structures. The higher ratings issuers can achieve using CPT structures mean lower haircuts.