Portugal moves into default territory Portugal is trading in default territory after investors offloaded the country's bonds this week amid rising fears of contagion. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens" debt. Many investors were also forced to sell Portuguese bonds after Standard & Poor's downgraded the country to junk on Friday. Other funds sold Portuguese debt after Lisbon was removed from Citigroup's European Bond Index, which these investors track, because of its fall to junk status. All three main credit rating agencies, S&P, Moody's, and Fitch, rate Portugal as junk, below investment grade. In the eurozone, only Greece is also rated junk by all the agencies. The markets are pricing in a 65 per cent chance that Portugal will default over the next five years, according to credit default swaps as these instruments, which protect investors from default, leapt to record highs this week. Portuguese bond prices have slumped to levels considered by many investors to be in default territory. Bond prices for benchmark 10-year debt were trading at 52 per cent of par, recovering from levels below 50 per cent on Monday. Portuguese 10-year bond yields, which have an inverse relationship with prices, jumped to euro-era highs of 14.40 per cent on Monday. They eased back to 14.12 per cent on Tuesday. Before the S&P two-notch downgrade late on Friday, yields were trading at 12.45 per cent. Elisabeth Afseth, fixed-income analyst at Investec Capital Markets, said: "The growing worry that Greece will default is now hitting Portugal because of contagion fears. If Greece defaults, then the worry is so will Portugal. We have seen how quickly this crisis can spread. Fitch, the rating agency, warned on Tuesday that Greece was likely to default in March when Athens is due to pay €14.5bn in bonds. Greek debt swap negotiations with private bondholders will resume in Athens on Wednesday, the Institute of International Finance said on Tuesday after talks were suspended last week. The IIF said its managing director and co-chairman of the private investor creditor steering committee for Greece, Charles Dallara, and Jean Lemierre, special adviser to the chairman, would resume discussions with the Greek government. But many investors fear the talks will fail, increasing the chance that Greece will default on March 20 when the bond repayments are due. Separately, Portugal has debt auctions on Wednesday that will test sentiment further, although most investors expect the country will raise the money comfortably. This is because the sale of €2.5bn in debt will be in short-term bills, which the country's banks are expected to buy, particularly as they can use the debt to exchange for loans with the European Central Bank, which will launch its second offer of unlimited three-year loans in February. Portugal does not have a bond maturing until June, when €10bn is due for repayment. The country's borrowing needs are also modest at €17.5bn. However, investors worry about its painfully slow growth, which could impact on its ability to service its debts.