Portugal's return to bond market fuels recovery hopes
Wednesday morning in Portugal and a corner was turned on the gruelling road to European economic recovery.
One of many corners but a corner nonetheless.
The government's successful auction of 750m euros (£617m) in bonds will almost certainly allow it to exit its bailout within a month.
It means three out of five of Europe's bailout programmes should be over by June.
Ireland, Spain and (hopefully) Portugal should be out. Greece and Cyprus will still be locked in.
In 2011 the "troika" - the International Monetary Fund (IMF), EU and European Central Bank (ECB) - offered the Portuguese government a bailout of 78bn euros ($116bn; £70bn).
No-one else would lend to Portugal.
The auction was the first in three years (although it started syndicated sales to banks last year) and saw yields driven down to eight-year lows of 3.575%.
Income from a bond is paid as a fixed amount, so as a bond's value rises its yield (the percentage return) falls, and vice versa.
Two years ago Portuguese bonds were so unloved and their value fell so much that yields rose to over 18%.
Portugal hopes to follow in the footsteps of Ireland, which exited its bailout in December.
Spain's "rescue" was slightly different, since it involved only the ECB and in theory bypassed the government coffers to be used purely to save its collapsing banking system.
Of the 100bn-euro credit line it used only 41bn euros, and left the programme in January.
However, Greece and Cyprus remain locked into their respective bailouts. But Greece this month did manage its own 3bn-euro five-year bond issue and got a yield of 4.95%, and, as long as you don't count paying interest on its debt, it is generating a budget surplus.
Richard McGuire, senior fixed interest strategist at Rabobank, points out that the bailout economies that manage to achieve a "clean exit" - that is without needing any standby emergency line of credit from the troika - encourage the markets.
"It's a self-generating momentum," he said. "If one bailout economy exits cleanly, then it indicates to everyone that there is light at the end of the bailout tunnel."
But there are reasons why the markets are rediscovering the joys of investing in these "periphery" European markets, and they have little to do with any grassroots economic recovery and a lot to do with the global flow of funds.
"Ever since the US Federal Reserve started tapering its support for the US economy, the emerging markets have wobbled, and money has been flowing out of them into Europe as well as the US," Mr McGuire explains.
"The European peripheries have been seen as a safe haven, and the euro has strengthened making it more attractive. And now there is also an increasing concern about deflation at the ECB."
That deflation, Mr McGuire believes, could trigger a wave of quantitative easing by the ECB. It has been buying bonds in the secondary market since 2012 to indirectly support the attempts of its cash-strapped member countries to borrow.
But it could now start to do so in a way that is designed to be inflationary, effectively printing money, and that would further lower the borrowing costs for all countries using the euro.
Will that make life better for ordinary citizens?
Success in the bond market does not mean success in the real economy, as was made evident earlier this month when, the day after Greece announced its return to the international bond markets, a car bomb exploded outside the Bank of Greece in central Athens and protesters launched an anti-austerity strike.
"We have seen that quantitative easing in the US and the UK has increased stock market valuations," Mr McGuire says. "Property values have also gained. Money has been parked in investment funds and equity linked vehicles.
"But it's not gone into investment in the real economy. The economies have not been rebalanced."
The same week that Ireland celebrated its return to the international markets the latest batch of figures showed its economy shrank 2.3% in the last quarter of 2013. Its public debt still stands at 124% of GDP.
Cyprus, devastated by a property and banking collapse, now faces the fallout from the Ukrainian crisis as many of its Russian investors feel the heat from sanctions.
If the bond market has not generated investment there is some hope that the reforms of the past three years will.
For instance Greece this month narrowly passed a 190-page reform bill covering everything from tax regulation to dairy farming and the pharmaceutical industry.
Spain, Portugal and Ireland have received plaudits from the IMF for their reforms and despite setbacks are out of recession. Spain is about to launch a huge tax reform process.
But still the most devastating wound inflicted by the financial crisis is unemployment. Spain and Greece are still fighting jobless levels of 25% and above - figures that will take years, if not decades to bring back down.