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Portugal Borrowing Costs Climb to 5-Month High at Bill Sale (1)

June 19, 2013

Portugal’s cost of borrowing for 18 months climbed to the highest level since January as the nation sold a combined 1.5 billion euros ($2.01 billion) of bills.

The country auctioned 1.05 billion euros of securities due in December 2014 at an average yield of 1.603 percent, the debt management agency said. That compares with an average of 1.506 percent at the previous sale of 18-month bills on March 20 and was the highest since Jan. 16. Investors submitted bids for 2.1 times the amount offered, unchanged from March.

Portugal also sold 450 million euros of six-month bills at an average yield of 1.041 percent, up from 0.811 percent at a previous auction on May 15 and the most since Nov. 21.

“It’s true that rates increased but it’s not an alarming rise,” Filipe Silva, director of asset management at Banco Carregosa SA in Oporto, northern Portugal, wrote in an e-mailed research note.

The nation sold 10-year (GSPT10YR) bonds on May 7 for the first time in more than two years as a decline in interest rates worldwide spurred demand for higher-yielding assets. It stopped selling bonds until this year after requesting a 78 billion-euro bailout from the European Union and International Monetary Fund in April 2011 following a surge in debt levels and borrowing costs.

Spread Widens

The yield on Portugal’s benchmark 10-year yield dropped one basis point, or 0.01 percentage point, to 6.10 percent as of 1:55 p.m. in London after rising to 6.65 percent on June 11, the highest level since Feb. 26. The two-year yield fell 10 basis points to 3.29 percent.

The extra yield that investors demand to hold the nation’s 10-year securities instead of similar-maturity German bunds widened two basis points to 4.56 percentage points after shrinking to 3.77 percentage points on May 22, the narrowest since February 2011.

Portugal pays an average interest rate on its aid loans of 3.25 percent, Prime Minister Pedro Passos Coelho said on May 10. The country’s debt is ranked below investment grade by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s.

The IGCP, as the debt agency is known, said on June 14 the total indicative amount for today’s auctions would be between 1.25 billion euros and 1.5 billion euros.

Portugal is already starting to raise financing for next year and has completed its borrowing needs for 2013, Finance Minister Vitor Gaspar said on May 7.

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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