Those watching keenly will know it’s less than 24 hours before the next important point in the euro sovereign debt crisis.

For a quick recap: Portugal will on Wednesday auction a mixture of 3.60% bonds expiring October 2014 and 4.80% June paper expiring 2020, aiming to raise a total of between EUR750 million and EUR1.25 billion.

The drum beat of denials which we’ve grown used to hearing before distressed states accept emergency cash from the European Central Bank, has of course started and is continuing.

Despite the euro ticking higher early in the European morning today, in response to Japan’s pledge to participate in sales of euro zone bonds this year, including buying Portuguese-issued paper, the single currency remains stuck below the psychological  1.30 mark and the upside seems limited.

At the same time, spreads between the yields of already-issued euro zone bonds and bunds, the latter of which are generally regarded as benchmarks for this asset class, are widening again this afternoon, having narrowed earlier today.

Both yields and the euro are showing the same pattern as they did on Monday, and the same cause – “aggressive” buying [to parrot a term used by Dow Jones, citing traders] of sovereign bonds by the European Central Bank, is being touted as the reason.

On Monday, when the news broke, the euro edged higher and spreads narrowed, just like today.

However the euro is now back near the lows it hit a week ago, when the US employment outlook looked to be taking a decisive turn for the better – judging by private sector and official jobs data – bringing back the ‘Least-Worst Economy’ scenario, with the US vying for the former title.

And yields are back near where they were at the start of the day too.

More crucially, Credit Agricole points out that the yield on the 10-year Portuguese bond is still close to 7%. It says 700 basis points is a level which has acted as a firm technical chart level for Greece’s paper at the height of its crises, and for Ireland too.

I.e., it was a difficult level to exceed, and not an easy one to fall back through as events calmed down.

The bank notes that that yield breadth was a signal during both Greece’s and Ireland’s case. Both states accepted bailouts from the ECB’s emergency mechanism, shortly thereafter, the bank says.

“A 7% yield for tomorrow’s small reopening would not send the Portuguese economy spiralling into insolvency, but it may set investor expectations to expect higher yields in subsequent auctions, thus risking pushing the Portuguese debt pile closer to unsustainable levels.”

Also consider this view from a trader [with a pinch of salt, of course.]

The trader points out that Portugal is going for a regular auction technique rather than syndication and that it’s aiming for maturities that have been under partuclar pressure.

Maybe, the trader says, Portugal is trying to “create the conditions by which it can claim loss of reasonable access,” to the capital markets?

He points out that the yield on 5-year Portuguese bonds is already way above [around 640 basis points] what would be “achieveable through EFSF funding.”

Amanhã.

ThSM