Debt-stressed Portugal got some respite from its financial troubles Friday when it managed to borrow 1.645 billion euros ($2.3 billion) in a bond auction.
However, the money it raised didn't come cheap amid widespread expectations that Portugal will soon have to join Greece and Ireland in requesting a bailout.
The government debt agency said it's paying a 5.8 percent interest rate on the bonds, which mature in June 2012. The yield in a 12-month bond auction last month was much lower at 4.33 percent.
One bright spot was that the agency had hoped to collect up to 1.5 billion euros in the auction, but with demand 1.4 times higher than the amount on offer it opted to take more.
Portugal's high debt load and weak growth have unnerved markets and unsettled the wider 17-nation euro zone which has fought for more than a year to plug the continent's sovereign debt crisis.
The Portuguese are fighting hard to avoid the same fate as Greece and Ireland, which last year had to get financial help from their euro partners as well as the International Monetary Fund.
"Despite everything, Portugal can still find investors who believe it will be able to settle its debts," said Filipe Silva, debt manager at Banco Carregosa. "With this bond auction Portugal has managed to buy some time."
However, Portugal's financial situation is looking increasingly dicey.
Rating agencies have downgraded Portugal's credit worthiness three times in recent days as the country's financial health deteriorated. Standard & Poor's cut its Portuguese bond rating to just one notch above junk status.
Political uncertainty after the government's resignation last week has only added to the concerns.
The yield on Portugal's 10-year bonds has risen to an unsustainable 8.48 percent — roughly the same level that forced Athens and Dublin to accept their rescue packages.
Portugal faces a key test later this month when it has to pay 4.5 billion euros on debts that are due. Another crunch comes in June when it has to find 4.96 billion euros for another bond repayment.
The debt agency said it held the sale, which it announced less than 24 hours before, because of "specific demand." It did not elaborate, but unconfirmed media reports said Portugal already had buyers before the auction, possibly from Brazil and China, which have previously indicated they would support the country.
The agency said it hopes to raise up to 7 billion euros in Treasury bill sales between May and June. Portugal has to find some 20 billion euros this year to finance its economy. Officials say they have already acquired about one-third of that amount.
At the same time, Portugal is set to elect a new government June 5, President Anibal Cavaco Silva announced late Thursday.
The minority Socialist government quit in a dispute with opposition parties over a new set of austerity measures.
None of the parties running in the ballot want to take a bailout, which would likely lock a future government into even tighter fiscal policies.
Antonio Barroso, a Europe analyst at Eurasia Group, said a quick solution to Portugal's financial crisis is unlikely.
"The political crisis continues to complicate the timing of a bailout, but default is not currently in the cards," he said, adding: "It is highly unlikely that the EU would let Portugal default on its debt, given the potential effects on neighboring and more systemically important euro zone countries."
A glut of bad economic news in recent days has worsened Portugal's plight.
Portugal's budget deficit last year was 8.6 percent of gross domestic product -- far above the outgoing government's target of 7.3 percent, according to an estimate Thursday by the National Statistics Institute.
Also, the Bank of Portugal predicts a double-dip recession this year, and unemployment has reached a record 11.2 percent.
The outgoing government's debt-cutting measures, including pay cuts and tax hikes, have angered many. A strike by rail workers during the morning commute Friday severely disrupted transit systems in the latest protest.
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