MacroscopePortugal's bank rescue throws euro zone woes into sharp relief
Beneath the favourable sentiment towards the euro zone, investors still harbour big concerns about governance of the single currency area
Over the past two years, market sentiment towards Europe's single currency area has proved resilient to all sorts of risks and vulnerabilities.
For those who believe the bond market routs and financial contagion that were the hallmark of the euro-zone crisis are things of the past, the muted reaction to last weekend's €4.9 billion (HK$50.7 billion) bailout of Banco Espirito Santo (BES), Portugal's largest listed bank, attests to investors' underlying confidence in Europe.
That the government of Portugal - which exited a three-year bailout programme in May without the safety net of a precautionary credit line - was able to mount a rescue of BES, which imposed losses on the bank's shareholders and junior creditors without triggering panic in markets, shows the extent to which sentiment has improved.
Although the bank's spectacular collapse raises troubling questions about the competence of Portuguese and euro-zone financial regulators, bond markets appear unruffled.
The yield on Portugal's closely watched two-year bonds currently stands at just 0.8 per cent, a near-record euro-era low. Benchmark Spanish and Italian 10-year bond yields, meanwhile, have barely budged and are also trading at near-record lows despite the release of Italy's second-quarter GDP data on Wednesday which showed the economy is back in recession.
Sentiment-wise, one would never think that Portugal's biggest listed bank has just collapsed.