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Ahead of the debt talks in Greece, and a key European Union summit,Portugal’s bond yields rose sharply on Monday.  At one point, 10-year Portuguese debt were trading 26 basis points higher at 15.54, while five-year debt was up 104 basis points at 21.44 in morning trade.

The past two weeks have seen unrelenting pressure on Portuguese bond yields, with the widely followed 10-year bond yield rising more than three percentage points to over 15%. Portuguese bonds have come under particularly intense pressure from investors, who were forced to sell their bond holdings, after Standard & Poor’s downgraded 15 euro zone countries earlier in January, putting Portugal in the “junk” category.

Yields have continued to rise amid the ongoing Greek negotiations, and investors are closely following the talks, worried at the prospect that they might set a precedent, if any such events were to recur inPortugal. The markets are now pricing in a 71 percent change that the country will default over the next five years, with the Portuguese credit default swaps at record levels.

The current positive market sentiment has been overshadowed by the negotiations betweenGreeceand bondholders. European bank stocks in particular, have risen over the last few weeks, in response to the recent move by the European Central Bank to help avert a liquidity squeeze by offering a €489 billion programme of three-year loans to more than 500 of the region’s banks. However, the absence of any positive news from the Greek debt restructuring talks has put European equities under pressure on Monday. Analysts said the market was looking to the Greek bondholder talks as a possible precursor for future negotiations with other troubled eurozone countries such asPortugal. Even though Portugal’s debt levels of around 105 percent of gross domestic product are much lower than Greece, investors are worried that if Greece has a disorderly default or a forced debt restructuring, Portugal would be the next to follow.

Lower salaries and across the board tax hikes, part ofPortugal’s austerity program, have sent business and consumer confidence to record lows. The decline in business and consumer confidence reflected both Portugal’s dire economic condition and the pain of austerity imposed as a condition of the first bailout. Rather than spreading the costs over the long-term, banks and other financial institutions, offering default insurance to holders of Portuguese sovereign debt, have begun demanding huge up-front payments. AfterGreece,Portugalis the second-highest sovereign to insure in the world, and this implies a huge lack of confidence inLisbon’s ability to revive its economy.Portugalis practically shut out from tapping capital markets in the foreseeable future and this makes its task of meeting future debt repayments even more unlikely.