Portugal selling 10-year bonds for first time since bailout

Following Ireland

Portugal’s 10-year yield fell below 6% in January for the first time since 2010, encouraging the nation to follow Ireland in selling bonds via banks. The nation sold 2.5 billion euros of five-year notes at a yield of 4.891% on Jan. 23, the first offering of that maturity since February 2011.

About 93% of the five-year securities were sold to overseas investors, including 33% to the U.S. and 29% to the U.K., the debt agency said. About 60% were taken up by asset managers and 24% by hedge funds.

“We’ve already been able to totally finance our needs for this year and are starting the pre-financing for 2014 to ensure that we are in condition to successfully exit the adjustment program,” Gaspar said. “The 10-year maturity is very important because it completes the yield curve and so completes our process of returning to bond markets.”

European Central Bank President Mario Draghi said in September debt purchases may be considered for euro-area countries currently under bailout programs, such as Portugal, Greece and Ireland, when they regain bond-market access. Outright Monetary Transactions “would not apply to countries that are under a full adjustment program until full market access will be obtained,” Draghi said Oct. 4.

More Issuance

“Regarding OMT eligibility, I think that Portugal not only needs to issue in more points of the curve but also more than one time per point of the curve, like Draghi hinted over the last press conferences,” said Ricardo Santos, an economist at BNP Paribas SA in London.

Prime Minister Pedro Passos Coelho on May 3 announced measures intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers as he tries to meet deficit targets.

The spending cuts will allow Portugal to complete the seventh review of its bailout plan and secure an extension of rescue loans that was agreed upon in principle on April 12 by EU finance ministers meeting in Dublin.

Rescue Loans

Ireland and Portugal both received rescue loans from two different programs: The EU-wide European Financial Stabilization Mechanism and the euro-area’s temporary firewall, the European Financial Stability Facility.

The seven-year extension to maturities of EFSM and EFSF aid loans to Portugal and Ireland implies an increase in the average maturity of Portugal’s total debt to about 8.5 years from about seven years, debt agency IGCP said on April 19. The maturity extension is “likely to be especially focused in lengthening the maturity of the loans originally maturing in 2016-2022,” which total about 22 billion euros, according to IGCP.

Portuguese bonds returned 5.8% this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s rose 8.6% and Germany’s gained 0.8%.

The extra yield investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 4.21 percentage points today from a euro-era record of 16 percentage points in January 2012.

Bloomberg News

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