Tags: Portugal | Borrowing | Costs | Increase

Portugal’s Borrowing Costs Increase at Bond Auction

Wednesday, 08 Sep 2010 02:27 PM

Portugal’s borrowing costs increased at an auction of 661 million euros ($839 million) of bonds due in 2013 and 378 million euros of bonds due in 2021.

The securities due September 2013 were issued at an average yield of 4.086 percent, the country’s debt management agency said. That compares with an average yield of 3.597 percent at a previous auction of the same-maturity debt on June 9. The bonds due April 2021 were issued at an average yield of 5.973 percent. That compares with an average yield of 4.171 percent at a previous auction of the same-maturity debt on March 10.

The premium that investors demand to hold Portuguese 10- year government bonds instead of benchmark German bunds pared its increase after the sale, and was at 359 basis points as of 2:17 p.m. in London from 354 basis points Tuesday. It widened to as much as 372 basis points earlier, the most since Bloomberg began collecting the data in 1997.

“There was slight relief that the Portuguese auctions went through,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. Still, “the amount sold was rather low,” he said.

The IGCP, as the debt agency is known, on Sept. 2 said the total indicative amount for both bonds in today’s auction would range between 750 million euros and 1.25 billion euros. Today’s bond auction was the first since July 2009 in which the total amount sold didn’t match or exceed the highest figure in the indicative range provided by the IGCP before the bond sales.

The 2013 sale attracted bids for 1.9 times the amount offered, compared with a bid-to-cover ratio of 2.4 in June. The 2021 bond auction attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 1.6 in the March sale.

“There was high demand in the sale, with a high level of participation of a wide base of investors, and a cost compatible with current market conditions,” Portugal’s Finance Ministry said in an e-mail.

Portugal is trying to cut its budget gap after posting a deficit of 9.3 percent of gross domestic product in 2009, the fourth-highest in the 16-country euro region. The Portuguese government aims to narrow the deficit to 7.3 percent of GDP this year and intends to meet the European Union limit for a gap of 3 percent in 2012, a year earlier than in a previous plan.

The Bank of Portugal in July predicted the country’s economic growth will slow in 2011 as the government trims spending to narrow the budget shortfall and reduce debt. The central bank forecasts growth of 0.9 percent this year and 0.2 percent in 2011. That would follow a 2.7 percent contraction last year.

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Portugal s borrowing costs increased at an auction of 661 million euros ($839 million) of bonds due in 2013 and 378 million euros of bonds due in 2021.The securities due September 2013 were issued at an average yield of 4.086 percent, the country s debt management agency...
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2010-27-08
Wednesday, 08 Sep 2010 02:27 PM
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