Greece uncertainty killing Portuguese bonds and stifling CDS activity

Tha Wall Street Journal carries a report on the horror now facing Portugal, linked here. The closing paragraphs are as follows:

Another trader noted the risks involved in trading in such conditions, because it can be difficult to offload bonds when nobody wants to buy them. "Most traders now only deal with Portuguese bonds on a order-only basis; otherwise it's just too risky," he said.

Portugal's 10-year government bond is yielding 13.78%, according to Tradeweb data.

The market for insuring the country's debt with credit default swaps has been slightly more active, as a different investor base helped push Portugal's five-year CDS to fresh records Monday.

With CDS, if a borrower defaults, sellers compensate buyers. However, participation of banks in the proposed Greek write-down are intended to be voluntary, a fact that left the industry body to say Greek CDS probably wouldn't pay out under such terms.

This means many market participants are more willing to sell Portugal's CDS, under the reasoning that should Portugal find itself in a similar situation as Greece, the Portuguese contracts wouldn't pay out either.

"Relative to holding (Portuguese) bonds, you'd be much happier selling CDS," a CDS trader said.

Portugal's five-year CDS earlier hit a record of 1,280 basis points, according to Markit.