Our word, your bond

10 January 2011 By John Foley Follow @johnsfoley

Buying bonds of troubled euro countries like Spain or Portugal isn’t charity for China. A healthy Europe, with a stronger currency, would buy even more Chinese goods. And there may be political concessions to be wrung down the line.

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China's vice premier Li Keqiang said his country was willing to buy around six billion euros of Spanish public debt last week, according to newspaper El Pais, quoting Spanish government sources during Li's visit to Spain and Portugal.

Portugal is in the process of making a private placement of bonds to diversify its investor base, the finance ministry said on Jan. 7 without giving any details of the operation. Reuters cited market talk that China could be buying Portuguese bonds.

Portugal, Italy and Spain are scheduled to sell government debt in auctions this week, testing of investors' appetite for the debtladen countries' paper.

Portugal's fiveyear credit default swaps were trading at 545 basis points at the close of trading on Jan. 7, having risen 9 percent in the first week of 2011, and doubled since August 2010, according to Markit data. Spanish fiveyear CDSs were trading at 357 basis points, up 2.5 percent since the end of 2010.

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