Forex Flash: Portugal in focus as yields mount and measures fall – Deutsche Bank

FXstreet.com (Barcelona) - Portugal topped the weekend headlines after the country's constitutional court rejected a number of austerity measures in the 2013 budget late on Friday. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “The measures in question included a cut in state pensions and public sector wages, which apparently breach a constitutional requirement that the burden of fiscal policy be fairly distributed and not discriminate between state and private sector workers.”

Over the weekend, the Portuguese government said that the impact of the decision will be offset by finding additional spending cuts, which the European Commission welcomed overnight as the 'the best way to restore sustainable economic growth and to improve employment opportunities in Portugal".

The European Commission's statement added that continued implementation of the country's program is a precondition for a decision on the lengthening of the maturities of the financial assistance. Portuguese bonds have underperformed in recent weeks and currently trade at their highest yields of the year at around 6.25%. Indeed, the spread between Portuguese and Spanish 10yr bonds yields reached 156bp on Friday, or more than double the lows in January when the spread was just 70bp.