Portugal managed to raise about 1 billion euros ($1.4 billion) in a Treasury bill sale Wednesday but paid a high rate for the cash as it appears inevitable the debt-stressed country will soon need a massive bailout.
The government debt agency sold 560 million euros in T-bills that mature in October and 450 million euros in bills maturing in March next year.
But investors asked for high interest rates — 5.11 percent and 5.9 percent — to part with their money. In similar auctions last month, Portugal paid a rate of just under 3 percent on 6-month bills and 4.3 percent on 12-month bills.
The figures show how market confidence in Portugal's financial future is evaporating as investors bet the country will not be able to manage its debt load on its own. The yield on the 10-year bond, for example, rose to a new euro-era record of 8.78 percent Wednesday.
Most analysts expect Portugal, part of the 17-nation eurozone, will soon accept a bailout like Greece and Ireland. It is expected to need up to 80 billion euros.
"Portugal was able to issue debt once more, but the rates are prohibitive," Filipe Silva, debt manager at Banco Caregosa, said. "The big question ... is where the buyers will come from for future sales."
Portugal has over the past year insisted it doesn't want assistance from Europe's bailout reserve and the International Monetary Fund because the terms of a big loan would lock it into austerity measures for years, lowering the standard of living in what is already one of western Europe's poorest countries. Athens and Dublin were reluctant to accept help for the same reasons.
But authorities are being cornered by the crisis. Rating agencies have downgraded Portuguese bonds to near junk status in recent weeks as new figures showed its debt load is worse than initially thought.
Added to that, the government quit last month and the country is in a political limbo until a June election, making it uncertain who has the power to ask for help.
Investors, including the country's main banks, are balking at providing funds to Portugal out of fear it may not be able to settle its debts. As financing dries up, companies could have problems finding money to pay wages.
Portugal's bankers are urging the caretaker government to ask its European Union partners for a bridge loan of at least 10 billion euros to see it through the election.
Moody's on Wednesday downgraded the credit ratings of the country's leading banks, following a similar move by Standard & Poor's the previous day.
"While a solution to the funding needs would be to negotiate a bailout package from the EU/IMF, it would seem more appropriate to postpone programme negotiations until after June 5 when a new government is in place," Barclays Capital said. "In our view, the more reasonable option at this stage seems to be for the EU to provide some form of bridge loan, possibly in the form of bilateral country loans from EU countries."
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