Greek, Portuguese bonds hit badly by debt fears

Fears over the state of strained public finances in Greece and Portugal forced a sell-off in their government bonds on Tuesday, sending yields to record highs.

Dealers said yields — the rate of return earned by investors holding the bonds — jumped to 7.541 percent on the benchmark 10-year Portuguese government bond, with the Greek equivalent hitting 12.696 percent.

Rates over six percent are widely seen as punitive in the bond markets and anything over seven percent is seen as barely sustainable over the long-term.

Greece had to be bailed out last year by the European Union and International Monetary Fund when the markets turned against it, demanding ever higher rates of return to provide fresh funds to the government.

Ireland sought help late last year and many analysts believe fellow eurozone struggler Portugal may need assistance in turn.

Dealers said the yield levels on Greek bonds suggested the market now believed that its debt would have to be restructured — meaning ultimately losses for buyers in its government paper.

For Portugal, the markets believe that it cannot hold much longer paying such yields and so will have to seek international help, they added.