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Portugal’s Revival Means 10-Year Bond Sale Likely, BlueBay Says

February 15, 2013

Portugal’s Revival Means 10-Year Bond Sale Likely, BlueBay Says

Portugal is ranked below investment grade by Fitch Ratings, Moody’s Investors Services and Standard & Poor’s. Photographer: Mario Proenca/Bloomberg

Portugal may announce plans to sell 10-year government bonds for the first time in two years as soon as this month as it regains access to long-term debt markets, according to BlueBay Asset Management.

Seeking to wean itself off international aid, the nation sold 2.5 billion euros ($3.3 billion) of five-year notes through banks last month, benefiting from borrowing costs that have fallen to the lowest since 2010. Portugal, which took a 78 billion-euro bailout in 2011, intends to gain “full market access in the next few months,” Joao Moreira Rato, the country’s debt chief, said in an e-mail today.

“We see Portugal regaining market access and in our opinion the European Central Bank’s definition of market access is three issues at different maturities,” said Mark Dowding, a London-based senior fixed-income manager at BlueBay, which oversees $47 billion including Portuguese bonds. “We may next expect a possible tap of a 10-year bond and then an issue at the short-end. It could be announced before the end of this month.”

Portugal’s 10-year bond yield fell three basis points, or 0.03 percentage point, to 6.20 percent at 12:33 p.m. London time. The rate, which was higher than 12 percent a year ago, reached 5.80 percent on Jan. 23, the least since October 2010.

The nation is ranked below investment grade by Fitch Ratings, Moody’s Investors Services and Standard & Poor’s. It needs to meet a 5.8 billion-euro September 2013 bond repayment without relying on its rescue program, which extends until the middle of next year, according to the bailout plan.

Yield Trend

“We have been rebuilding an investor base” after downgrades caused some bondholders to sell their Portuguese securities, debt chief Rato said. His agency has been meeting with money managers for the past six months, he said.

Portugal can monitor the evolution of the markets and select the optimal moment for sales, Luis Marques Guedes, the secretary of state for the presidency of the council of ministers, said yesterday.

“The 10-year bond yield will need to go back below 6 percent before we see supply from Portugal in this part of the curve,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “It depends on the trend of the yields. We are quite positive on Portugal. At the moment they have good demand up to five years but they may struggle to get demand beyond that.”

Portugal last auctioned 10-year bonds in January 2011 at a yield of 6.716 percent, data compiled by Bloomberg show.

Fair Value

“We are working to increase the liquidity in our secondary markets across the yield curve so that we can issue on a sustained basis,” the debt agency’s Rato said. A yield curve is a chart consisting of bonds of different maturities.

BlueBay is positive on Portuguese debt, Dowding said, because current yield levels adequately compensate investors for the risks involved.

Investors demand a yield premium of 458 basis points to hold Portugal’s 10-year debt instead of similar-maturity German bunds. Fair value for the so-called spread is 314 basis points, according to Goldman Sachs Group Inc. strategists Francesco Garzarelli and Silvia Ardagna. “Portuguese bonds still offer value,” they wrote in a note to clients on Feb. 12.

“We’re interested in rebuilding all of Portugal’s yield curve, which will imply issuing 10-year debt at a given time and when adequate,” Secretary of State for Treasury Maria Luis Albuquerque told reporters at a press conference in Lisbon on Jan. 23.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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