Portugal's PM Socrates holds during a EU leaders summit in Brussels
Portugal's PM Socrates holds during a EU leaders summit in Brussels Reuters

On Thursday, yields on the Portuguese 10-year sovereign debt reached an all-time euro-era high of 7.6 percent, according to multiple media reports.

The European Central Bank was then forced to intervene by buying Portuguese debt on the market and push back down the yields.

Portuguese state officials then promptly denied that it needs to seek a bailout and blamed speculative attacks for the sell-off of its sovereign debt.

There was no fundamental trigger for the move. However, Thursday's development is eerily similar to the Irish debt crisis.

Back then, the market realized the enormous problems within the Irish financial system and eyed it as the next target after Greece was bailed out earlier.

During one week, yields on Irish sovereign debt spiked. Irish officials promptly denied they were in trouble and said they didn't need any bailouts.But after yields rose some more, they acquiesced and sought a bailout.

On Thursday, without too much warning, Portuguese yields rose.

Fundamentally speaking, the country's economic problems are slow growth and the lack of competitiveness, which diminishes its chance to generate enough tax revenues to repay debt.

Moreover, according to Marc Chandler of Brown Brothers Harriman, Portugal's private sector debt, at 240 percent of GDP, is one of the highest in the world. A high percentage of its sovereign debt is also held by foreigners.

These problems listed above aren't new at all and the market has known them for a while, so Thursday's yield spike could just have been a fluke.

However, given the similarity to the first stages of Ireland's debt crisis and the fact that Portugal (not Spain, Italy, or Belgium) is almost universally regarded as the weakest euro zone sovereign that hasn't been bailed out yet, investors should pay attention to this sudden rise in yields.

Email Hao Li at hao.li@IBTimes.com

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