Bloomberg News

Portugal Raises Less Than Maximum Amount Set at Bill Sale

October 17, 2012

Portugal sold 1.85 billion euros ($2.4 billion) of bills with maturities of as much as 12 months, less than its maximum target of 2 billion-euros.

The nation’s bonds rose as borrowing costs fell at a sale of 770 million euros of debt due in October 2013. Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he raises taxes to meet the terms of a 78 billion-euro European aid plan. Portugal aims to regain access to bond markets by September 2013 and 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 IMF and the EU.

“Despite mounting political tensions surrounding fiscal policy, the improvement in Portugal’s perceived creditworthiness is facilitating the country’s gradual re-entry into the debt markets,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in a note after the auction.

The 12-month bills were sold at an average yield of 2.1 percent, the lowest since 2010, according to IGCP, the national debt management agency. That compares with an average yield of 3.505 percent at a previous auction of similar-maturity securities on July 18. Today’s sale attracted bids for 2.5 times the amount offered, compared with a bid-to-cover ratio of 2.4 in July.

Bonds Advance

Investors bought 830 million euros of April 2013 bills at an average yield of 1.839 percent with a bid-to-cover ratio of 2.8 times the amount offered. Six-month bills sold on Sept. 19 attracted an average yield of 1.7 percent and a bid-to-cover ratio of 3.1.

Portugal’s 10-year bond yields fell 18 basis points to 7.86 percent, after earlier declining to the lowest since March 2011. The two-year note yield was little changed at 4.23 percent.

The debt agency today also sold 250 million euros of three- month bills due in January 2013 at an average yield of 1.366 percent, attracting bids for 8.1 times the amount offered. That compares with an average yield of 3.845 percent at a previous auction of three-month bills on Feb. 15, with a bid-to-cover ratio of 10.3.

Bonds Exchange

The IGCP on Oct. 3 exchanged bonds maturing in September next year for securities due in 2015, reducing its 2013 repayment burden as it plans to regain access to long-term debt markets. Portugal has to meet the September 2013 bond redemption without relying on a European Union-led rescue program, which extends until the middle of 2014.

European Central Bank President Mario Draghi on Sept. 6 said bond purchases may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they return to bond markets.

Portuguese Finance Minister Vitor Gaspar on Oct. 15 said spurning the 2013 budget proposal would mean rejecting the aid program. Gaspar said on Oct. 3 that the government plans an “enormous” increase in taxes on wages and other income to meet budget deficit targets next year. The budget proposal has been criticized by employers, labor unions and some supporters of the ruling coalition parties.

Portugal has already been given more time to narrow its budget shortfall after tax revenue missed forecasts and the economy is expected to contract in 2013.

“Portugal is at a critical juncture,” Spiro said. “The policy credibility, which the government has built up over the past several months, is now at risk. While the markets are currently taking Portugal’s domestic problems in their stride, we believe country-specific risks are a growing concern.”

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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