The yield on the Portugal 10-year bond is at 7.1%…

From Marcus Walker at the WSJ: Portugal's Test of Debt Market Looms This Week

Portugal hopes to raise new funds in a bond auction on
Wednesday … European Union governments including Germany and France
have for weeks been urging Portugal to apply for rescue loans from the
joint EU-International Monetary Fund bailout facility …

the EU's deliberations over Portugal haven't reached the intensity seen
ahead of the Greek and Irish rescues … That could change quickly,
however, should Portugal's borrowing costs continue to rise. Euro-zone
finance ministers are set to meet Jan. 17, by which time the market's
appetite for Portuguese debt should be clear.

And here is the FT round up:

Portugal and the EFSF: déjà vu all over again

Reuters reports this morning that discussions have
started for Portugal to seek fund under the EFSF/IMF scheme, as
pressure on Portuguese and other eurozone peripheral bonds increased on
Friday. According to the Reuters report, preliminary discussions have
taken place since July about a scheme totalling between €50bn and
€100bn, according to an unnamed source. Merkel’s spokesman officially
denies that any pressure has been brought on Portugal (which is
obviously not true). The article also said the EU was expecting a
“battle of Spain”, which would be the real test of the system.

The official Portuguese reaction continues to be one
of denial. Portuguese Prime Minister José Socrates reiterated that the
government is doing its homework and that his government will meet its
2010 budget target. Jornal de Negocios
quotes Socrates saying: “We have better results in terms of receipts,
better results in terms of expenses and this provides the strongest
signal of confidence to the international markets that we can provide”.
 We heard the same messages before Greece and Ireland were bailed out.
Pedro Passos Coelho, the leader of the opposition, is quoted by Reuters
as saying with that, with an EU bailout, the government would not be in a
position to continue ruling as its policies would have failed. In
Portugal, the opposition is obviously using the threat of a bailout for
political point scoring.

In its attempt to alleviate the pressure of the
markets, the Portuguese government is looking into alternatives to debt
auctions. Diario Publico (hat tip El Pais) reported that the Finance Ministry will proceed with a direct sales operation, possibly towards with China.

Spanish newspapers reported that Portugal would
inevitably have to seek international financial help. (To contain
contagion, Spain wants Portugal to tap the funds sooner rather than
later.)

Spain is nervously awaiting its first bond issue of 5 year bonds, El Pais reports. Italy will also launch a bond that same day.

Bloomberg
cites an article in today’s Handelsblatt saying that Germany might be
ready to discuss expanding the €750bn rescue facility at the next EU
summit. Der Spiegel
reported that this could coincide with an agreement on aid for
Portgual. “No decision has been taken about widening the rescue fund,”
Steffen Seibert, Merkel’s chief spokesman told.