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Commentary: The Sobering Truth About Portugal
12 Jan 2011 EST - CNBC.com
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If Portugal's ability to generate headlines saying it's had a "strong" bond auction is startling, the effect it's having on world markets is almost unbelievable.

Certainly Europe surged today, with giant Spanish banks Santander and BBVA leading the charge—in their wake the big French and German banks most exposed to peripheral debt Societe Generale and BNP Paribas . The cost of insuring European bank debt through credit default swaps also dived today.

But let's just take a reality check. This isn't optimism. Surely the baseline is that traders were positioned for bad news. This is short covering. Don't forget Europe's banks did not rally with the market at the end of last year. In fact, they're still down 10 percent on July.

So, Portugal sold 1.2 billion euros of debt ($1.61 billion). Big deal. What does that prove? Surely in the context of sovereign debt, the amount is tiny. Moreover, Lisbon won't tell us who bought the paper.

In the wake of the rumor that it 'privately' placed a bond over the weekend, we can assume its government is working hard to make friends and pull strings behind closed doors. As one London trader remarked to me, "much like the banks ran around in 2007 and 2008 trying to borrow money from anyone willing to lend."

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