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Portugal Sounds Out Market as It Plans to Resume Note Sales

July 20, 2012

Portugal is “sounding out” the market as it prepares to resume sales of medium-term notes, the head of the nation’s debt agency said in an interview.

“It will depend on market conditions and on the appetite from specific investors,” Joao Moreira Rato, chairman of the Lisbon-based debt agency, said in an e-mailed response to questions. There is no scheduled date for issuing the notes, he said. “We are continuously sounding out the market.”

The debt agency plans to issue “a substantially lower value” than the total limit of 10 billion euros ($12.2 billion) for the debt agency’s medium-term-note program, Moreira Rato said. He declined to specify investors who might purchase the securities.

Portugal aims to regain access to bond markets by September 2013 and Prime Minister Pedro Passos Coelho has said that if the country can’t do that for “external reasons,” it would be able to count on continued support from the European Union and the International Monetary Fund. Portugal is cutting spending and raising taxes to comply with the terms of a 78 billion-euro aid plan requested in April 2011.

The Portuguese government plans to issue medium-term notes with maturities of one year to five years that are designed for specific creditors, the IMF said in a report released on July 17. The government is also expected to sell more treasury bills with maturities of more than one year in the coming months, the Washington-based fund said.

Longest Maturity

The IGCP, as the Lisbon-based debt agency is known, sold 1 billion euros of 18-month bills on April 4, the longest debt maturity auctioned since the country requested the bailout, at an average yield of 4.537 percent. The IGCP said on July 2 it plans to sell as much as 3.75 billion euros of bills in the third quarter.

Portugal on July 18 sold 1.25 billion euros of 12-month bills due in July 2013 at an average yield of 3.505 percent, the lowest since November 2010, the debt management agency said.

Spain, which is getting a 100 billion-euro bank bailout, on the previous day sold 12-month bills at a yield of 3.918 percent. Cyprus on June 25 became the fifth euro country to request a bailout since Greece triggered the European fiscal crisis.

The IGCP has also issued debt during the past year through a commercial paper program with maturities of as much as 12 months for specific investors, according to Moreira Rato.

Bond Yields

Portugal’s 10-year bond yield is now at about 10.5 percent, while two-year debt yields 7.6 percent. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 9.3 percentage points from 16 percentage points on Jan. 31.

The IMF projects Portugal’s debt will peak at about 118.5 percent of gross domestic product in 2013 and decline to less than 80 percent of GDP by 2030. The projection assumes annual economic growth of 2 percent and medium and long-term borrowing costs of 7 percent in 2013, declining gradually to 5 percent over the next four years.

Portuguese Finance Minister Vitor Gaspar said on June 26 that the weighted average rate of the country’s financial-aid program is 3.6 percent. The next review of the country’s aid program, which is scheduled to start on Aug. 28, will focus on the planned return to bond markets in 2013, Passos Coelho said on June 29.

To contact the reporter on this story: Joao Lima in Lisbon at

To contact the editor responsible for this story: Stephen Foxwell at

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