Debt: Portugal's Minsky Moment?

PORTUGUESE GOVERNMENT BONDS 10YR NOTE PORTUGAL PL (GSPT10YR:IND) - graph source: Bloomberg

Same may think that ECB's 3-year longer term refinancing operation (LTRO) has taken the Euro a step back from the cliff's edge. However in a scenario where sovereign debt borrowing costs have fallen across Europe, Portugal's 10 year bond yields rose steady, to all-time highs, despite the issuance of 2.5 billion euros of short-term treasury bills on January 18th at lower yields.

The country's 10-year yields are now close to 15%. Reuters notes that Five-year credit default swap prices implied the market was pricing in a 66.8% chance of default.

In the Euro crisis time frame, Austerity and Growth seem to be at odds with each-other and the 'confidence fairy' is nowhere to be seen! As Paul Krugman said in 2010, "somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed". For a small, open economy of the periphery, expansionary austerity cannot be expected to work in a period when the few countries with current account surplus and a trade surplus are reducing consumption. By the time the country is globally competitive, it may be too late. In the worst scenario we could be heading for a Heinrich Brüning style deflation.

Has Portugal's Minsky Moment arrived at last?