Bloomberg News

Portugal’s 10-Year Yield Drops to 18-Month Low on ECB Bond Plans

September 07, 2012

Portugal’s bonds rose for a sixth- straight week, sending 10-year yields to the lowest in almost 18 months, after European Central Bank President Mario Draghi announced a plan to buy indebted-nations’ bonds.

Borrowing costs plunged below the market rates when Portugal requested financial aid from the European Union on April 6, 2011. Bond purchases may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they regain bond-market access, Draghi said at a press conference in Frankfurt yesterday.

“The lower yields now facing Ireland and Portugal make market financing an ever more realistic” prospect in the coming months, said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris.

Ten-year government bond yields dropped 61 basis points, or 0.61 percentage point, to 8.10 percent at 5:58 p.m. London time, after reaching 8.09 percent, the lowest since March 31, 2011, and down from 9.31 percent a week ago. The 4.95 percent security due in October 2023 climbed 3.58, or 35.80 euros per 1,000-euro ($1,278) face amount, to 77.475.

The extra yield investors demand to hold Portuguese 10-year bonds instead of their German equivalents shrank to 647 basis points, the narrowest since May 2011. Portugal’s five-year note yields reached 5.94 percent, the least since January 2011. Two- year rates fell to as low as 4.14 percent, the least since March 2011.

Officials from the International Monetary Fund, the European Commission and the ECB started a fifth quarterly review of Portugal’s aid program on Aug. 28. It focuses on topics including the planned return to bond markets in 2013, as well as on the 2012 and 2013 budget plans.

Portugal plans to regain access to bond markets by September 2013 and Prime Minister Pedro Passos Coelho has said if the country can’t do that for “external reasons,” it would be able to count on continued support from the EU and the IMF.

The nation is “sounding out” the market as it prepares to resume sales of medium-term notes, Joao Moreira Rato, chairman of the country’s debt agency, said in an interview in July.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net


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