Bloomberg News

Portugal’s Borrowing Costs Rise at 2 Billion-Euro Bill Sale

November 21, 2012

Portugal’s borrowing costs rose as the government sold a combined 2 billion euros ($2.56 billion) of three-, six- and 18-month bills in its last debt auction for this year.

The nation sold 1.2 billion euros of securities due in May 2014 at an average yield of 2.99 percent, compared with 2.967 percent at a previous auction of 18-month bills on Sept. 19, the debt management agency said. Investors submitted bids for 1.9 times the amount allotted, down from 2.4 times in September.

The agency sold 500 million euros of six-month bills at 2.169 percent, up from 1.839 percent on Oct. 17. It sold 300 million euros of three-month securities at 1.936 percent, versus 1.366 percent on Oct. 17.

“Portugal sold all the debt it aimed to sell in this last auction of 2012, which is always good news,” Filipe Silva, who manages the equivalent of $76 million at Banco Carregosa SA in Oporto, northern Portugal, wrote in a note to clients. “The increase in rates was not a total surprise because the secondary market was already demonstrating that increase in yields in the last few weeks.”

Notes Gain

Two-year notes gained for a fourth day, with the yield falling 27 basis points, or 0.27 percentage point, to 4.75 percent at 1:55 p.m. in London. The yield is still above this year’s low of 3.89 percent set on Oct. 8.

The 10-year rate dropped 22 basis points to 7.97 percent after falling to 7.95 percent, the lowest since Oct. 26. The extra yield investors demand to hold the securities instead of similar-maturity German bunds shrank to as little as 6.52 percentage points today from a record 16.47 percentage points on Jan. 31.

Prime Minister Pedro Passos Coelho is battling a deepening recession as he raises taxes to meet the terms of a 78 billion- euro aid plan from the European Union and the International Monetary Fund. 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 rely on continued support from the IMF and the EU.

Portugal in April 2011 followed Greece and Ireland in requesting a bailout. European finance ministers failed to agree on a debt-reduction package for Greece at a meeting that ended early today in Brussels.

The IGCP, as the debt agency is known, said on Nov. 15 the total indicative amount for today’s auctions would be between 1.75 billion euros and 2 billion euros. It also said a bill auction scheduled for Dec. 19 would be scrapped.

The debt agency on Oct. 3 exchanged bonds maturing in September next year for securities due in 2015, reducing its repayment burden for 2013 as it plans to regain access to long- term debt markets.

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

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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