Portugal bond yields slumped further on Wednesday (July 03) on rising political tensions in Lisbon, dragging the rest of lower-rated euro zone debt in their wake.

After the turmoil generated by foreign minister Paulo Portas' resignation on Tuesday, Portuguese local media said two more government ministers were preparing to resign on Wednesday, deepening the turmoil that could derail Lisbon's exit from an international bailout.

The returns investors demand to hold 10-year bonds surged to above 7.5 percent for the first time since November.

Portugal's PSI 20 stock index slumped six percent, led by sharp losses of over 10 percent in banks' shares.

Prime Minister Pedro Passos Coelho told the nation late on Tuesday that he did not accept Portas' resignation and would continue to head the government to ensure political stability and work to overcome the stalemate.

Coelho's decision puts the responsibility for the government's survival squarely on the shoulders of Portas, who now has to decide whether to stay in his post or pull his rightist CDS-PP party out of the coalition. Without the CDS-PP, the centre-right government would lose its majority.

Presented by Adam Justice

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