Portugal staged what is being considered a "successful" bond auction on Wednesday. What this means, in the current climate of Eurozone fear and trembling, is that the interest rate "yield" that the government was forced to offer in order to convince investors to purchase its bonds came in just a smidgen under the absolutely ruinous high number that everyone was dreading.
To faciliate sales of 1.2 billion euros worth of four and ten year bonds, Lisbon offered a yield of 6.71 percent. That's a tiny bit under the 6.80 rate reached at the last Portuguese offering in 2010. But it's still awfully close to the 7 percent level which seems to be considered the current point beyond-which-there-is-no-return except for a Eurozone bailout. (For comparison purposes, the U.S. Treasury is currently offering ten year bonds at yields of 3.35 percent.)
Some Europe watchers are breathing a big sigh of relief at the Portuguese auction -- hoping that it is a sign that the Iberian nation might avoid the bailouts required by Greece and Ireland, and banish once and for all the sick feeling that European dominos won't stop falling until the entire European Community is broken up and sold for spare parts. This may be premature. Paul Krugman is skeptical. Portugal may have gained some breathing room today, but virtually no one thinks its economy has any near term prospects of growing fast enough to deal with its debt load. Borrowing money at exorbitantly high interest rates may ultimately just make the long-run pain even worse.
Nonetheless, stock markets across the world exhaled in relief. In mid-day trading in the U.S., the S&P 500 reached highs not seen since August 2008, while the Dow was hovering just a whisker below a similar lofty level. On at least a couple of levels, this seems ridiculous. Portugal, a nation with a GDP about the size of the state of Kentucky, teeters just little further away from bankruptcy than people feared, and stock markets around the world surge to highs not seen since before the worst months of the financial crisis.
Of course, on Thursday, a bad result in a Spanish bond auction could trigger the opposite response. We're living in a hair-trigger world, where the decisions of bond investors on any given day are taken as an instantly transmitted-around-the-globe report card on the economic zeitgeist. But the very fickleness of the reaction -- up one day, down the other, would seem to undermine the rationale for paying any attention to the zigs and zags. And yet it's almost impossible to look away.