Portugal's spreads underperformed the broader market on Tuesday following news that its finance minister Vitor Gaspar had resigned.

Gaspar was popular in the corridors of power in Brussels - he is a former adviser to the European Commission president - but at home he was a lightning conductor for disillusionment with the government's austerity policies.

Local elections are due in September, and the two parties that make up the governing coalition could well struggle at the polls. Portugal is due to exit its current troika bailout in June next year, and has so far been granted some flexibility by the EU and IMF.

The stance of the troika is likely to remain supportive, but political instability could create tensions. Portugal's CDS spreads were 8bps wider at 403bps, and they have now given back almost 130bps since May 22. Still, this is a far cry from the 876bps level reached less than 12 months ago.

As well as Portugal, Greece is also being closely monitored by the markets. The troika had reportedly given the country a Friday deadline to reassure them on the bailout plan. The three-day deadline was later denied by EU officials, and it seems inconceivable that Greece won't receive the next tranche of bailout aid next week, though it could be split into several smaller parts.

The Markit iTraxx Europe was more than 1.5bps tighter at 114bps, while the Markit CDX.NA.IG was flat at 84.5bps. Government bond yields were lower, which may have helped credit outperform equities, in Europe at least.

European sovereigns have taken a back seat in recent months as central bank policy took over as the main driver of spread direction. But a quiet day like today gave them the opportunity to capture the attention of investors.

Portugal aside, the credit markets were treading water on Tuesday, and look set to continue in this vein until clarity is provided by the ECB and US unemployment figures later this week.

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