February 25, 2024

Portugal Sells Debt but at a Much Higher Rate

Portugal sold 455 million euros, or $650 million, of one-year Treasury bills at an average yield of 5.9 percent, the country’s debt management agency said. That was significantly higher than the 4.33 percent yield when Portugal last sold such bills on March 16. The auction attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 2.2 two weeks earlier.

The agency also sold 550 million euros of six-month bills at an average yield of 5.12 percent, compared with a yield of 2.98 percent at a previous auction of on March 2.

The sale came after the ratings agency Moody’s cut the sovereign rating of Portugal on Tuesday for the second time in a month, which helped send yields on Portuguese government debt to their highest levels since the launch of the euro. On Wednesday, Moody’s also downgraded by one or more notches the senior debt and deposit ratings of seven Portuguese banks.

“The weakening credit strength of Portuguese banks is driven by the challenging operating environment and a loss of market confidence that is closely correlated with the sovereign’s credit challenges,” Moody’s said.

Caught in a political crisis and facing tough refinancing hurdles for the next three months, Portugal is under intense pressure from financial markets to join Greece and Ireland in seeking a bailout from the European Union and the International Monetary Fund. Jean-Claude Juncker, the prime minister of Luxembourg, who also presides over meetings of euro zone ministers, recently estimated that 75 billion euros would be needed.

The Portuguese debt agency provided no indication as to who had been bidding at its auction on Wednesday. However, market analysts have speculated that demand has been bolstered recently by investors from strong emerging markets like Brazil and China.

Portuguese banking executives warned this week that they did not want to take on more sovereign debt, urging the caretaker government of Prime Minister José Sócrates to negotiate an international bridge loan with Portugal’s European partners. Such a stop-gap measure would allow the country to meet its financing obligations until a new government is in place, with sufficient legitimacy to negotiate a possible bailout.

Mr. Sócrates, who had been governing without a parliamentary majority, resigned last month after lawmakers rejected his latest austerity package. Portugal is set to hold another general election on June 5, which would likely mean that a new government would take office at the end of June or in early July, depending on whether the voting produces a clear-cut outcome.

Article source: http://www.nytimes.com/2011/04/07/business/global/07euro.html?partner=rss&emc=rss

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