Bloomberg News

Gaspar Says Bonds Don’t Reflect Progress Portugal Has Made

February 02, 2012

Feb. 2 (Bloomberg) -- Portuguese government bond yields aren’t reflecting the progress that the country has made controlling its budget deficit, with its adjustment program “well on track,” Finance Minister Vitor Gaspar said.

“Since Portugal is under a program it does not finance itself, so yield differentials do not reflect the cost of financing,” Gaspar said last night at the London School of Economics. “Yields in the secondary market do not reflect fundamentals. Volumes are very low. On some days turnover is actually zero.”

Portugal’s 10-year government bond yield climbed to a euro- era record on Jan. 30. Yields have since fallen for two consecutive days as concern eased that investors in the nation’s securities may be forced to take losses in the event of a Greek debt-swap deal. Portuguese 10-year bonds climbed yesterday, pushing the yield down 118 basis points to 15.221 percent.

Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($103 billion) aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout and now aims to return to bond markets in 2013.

Airline Sale

Portugal is also selling assets and plans to begin the sale of airline TAP SGPS SA soon, Gaspar said yesterday.

“We intend to start the privatization process of TAP very soon,” Gaspar said. He said he hopes to see the sale completed “as fast as feasible.”

Portugal narrowed its budget deficit to about 4 percent of gross domestic product in 2011 following the transfer of banks’ pension funds to the state. The government expects the budget deficit will reach 4.5 percent of GDP in 2012 and the EU ceiling of 3 percent in 2013, after hitting 9.8 percent in 2010.

Portuguese government debt is projected to “stabilize” at 112 percent of GDP in 2013, after reaching 111 percent in 2012 and 101.6 percent last year, the European Commission forecast in November. Debt was 93.3 percent of GDP in 2010.

The austerity measures are hurting the economy, which will shrink 3 percent in 2012, the European Commission forecast on Nov. 10. The country’s economic growth has averaged less than 1 percent a year for the past decade, placing it among Europe’s weakest performers.

--Editors: Jim Silver, Kevin Costelloe.

To contact the reporters on this story: Gonzalo Vina in London at; Joao Lima in Lisbon at

To contact the editor responsible for this story: Tim Quinson at

The Good Business Issue
blog comments powered by Disqus