Three-month borrowing costs nearly doubled from the previous sale in Portugal's last debt auction of the year on Wednesday, reflecting persistent investor concerns about the debt-ridden country.
But while the yield, at 3.403 percent, hit a euro lifetime record and compared with 1.818 percent in the previous auction on Nov. 3, it came in below secondary market rates of around 3.8 percent on the same maturity.
Traders had been expecting a yield of 3.5-3.8 percent.
Portugal sold all 500 million euros ($670.8 million) worth of March 2011 T-bills on offer in the auction, in which demand — relatively strong for the year-end pre-holiday season — outstripped supply by 1.9 times, slightly lower than 2.2 times in the previous auction.
"This is not that bad if you look at the secondary market yields. Obviously it is relatively weak, but at least it is not going to leave the market worried again about funding," said Orlando Green, debt strategist at Credit Agricole in London.
"I think the main concern though is that the market will be tougher next year. We are holding on to see the sentiment in January," he added.
Portugal's borrowing costs have spiked this year on investor concerns over its public finances, and more recently, that the country may follow Ireland and Greece in seeking outside help to manage its debt.
The cost of short-term money has risen even as the European Central Bank has moved to keep a lid on benchmark 10-year debt yields in the past two weeks.
The premium investors demand to hold Portuguese 10-year-bonds rather than safer German Bunds was unchanged at 355 basis points after the auction, but edged up about 2 basis from Tuesday's settlement levels.
Portugal has now completed its debt issuance program for 2010. Its next bond redemption is not due until April, when it has to repay 4.5 billion euros. In total, Lisbon has to repay 9.5 billion euros in bonds next year.
According to the Portuguese 2011 budget, next year's net financing needs are 10.75 billion euros.
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