Growing concerns of an imminent economic slowdown has triggered investors to look for safer alternatives. Portugal has shown strength by recovering since the crisis in 2012, with persistent growth and a declining unemployment. Amongst the love clouds, we find several warning signs that might affect their 10-year government bond yield. At the same time, we see a malformed front end of the Portuguese yield curve, which although shows stable growth and a healthy political environment, are susceptible to contagion risk from Spain, which is enough for a correction of this anomaly to give opportunity for great profits with low risk.  We suggest taking a short position in the Portuguese one-year bonds and a long position in the Portuguese six-month bonds to limit the downside risk.

Analysts: Nils Billgert (MSc in Economics) and Tom Ghorbani (MSc in Economics)