The current credit market rally came to a halt today, falling just short of completing its 10th day.

But it would be no surprise to see spreads resume their inexorable march tighter next week. Potential negative catalysts have been swept away by the wave of liquidity triggered by the Bank of Japan announcement earlier this month. High-beta credits, in particular, have benefited from the hunt for meaningful yields. The periphery is the obvious source for high-yielding assets, and spreads have rallied as a result.

The Markit iTraxx Europe tightened to its pre-roll level of 108bps yesterday, though it has since given back some of its gains and is trading at 110.5bps today. This is still 18bps tighter than where it was trading at the end of March. The Markit iTraxx Europe Series 18 index broke through the 100bps mark for the first time, though it should be noted that when the skew is taken into account the index was trading tighter at the start of the year.

However, if one had been looking for events that might have shifted sentiment they wouldn't have been difficult to find. Slovenia, the focus of potential crisis immediately after the Cyprus bailout, appears to have faded into the background, at least for now. Portugal has taken over as the target for bears after its constitutional court rejected some of the government's proposed austerity measures.

Things got worse after a leaked EU report revealed that Portugal will have great difficulty in avoiding a second bailout. It faces considerable funding needs over the next two years, and there are doubts that it can raise the necessary money at sustainable rates. This confirms what many in the market have suspected for some time.

Portugal's CDS spreads hit 425bps on Monday, their widest levels since the start of the year. But it should also be remembered that this is nowhere near the 1,200bps seen last summer. Portugal has the support of the troika and it would take a major political upheaval for this to change.

The Eurogroup of finance ministers today approved a seven-year extension of the EU bailout loans to Portugal and Ireland. This will give both countries some welcome breathing space, but a second bailout is still a real possibility.

Sovereign concerns aside, the focus of the markets are likely to switch to US earnings next week. Results from JPMorgan and Wells Fargo today were mixed, with higher profits being achieved mainly through cost-cutting rather than revenue improvement.

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