Portugal hopes light 2012 debt needs will save it

LISBON Jan 31 (Reuters) - Portugal's government has remained cool as soaring bond yields have raised the spectre of another bailout, knowing its debt repayments are covered for at least a year.

It is also doggedly sticking to its tough budget goals as it seeks to avoid becoming the euro zone's next Greece, facing bankruptcy and having to go cap in hand for aid a second time.

Portugal has come under intense bond market pressure in the past week as investors fear it will be forced down Greece's path towards a new bailout or have to restructure its debt.

But the government insists it has no intention of asking for more funding or extending its 78-billion-euro bailout from the European Union and International Monetary Fund.

"The country is not asking for more time nor more money," Prime Minister Pedro Passos Coelho told journalists at this week's summit of European leaders.

His strategy is to plough ahead with tough austerity to meet budget goals required by the bailout and to make sweeping economic reforms to improve competitiveness, thereby winning the time necessary for a planned return to bond markets at the end of 2013.

But the underlying support comes from the fact that Portugal is under nothing like the pressure that Greece is.

In terms of actual bond redemptions, or the lending that needs to be repaid, Portugal has a considerably lighter calendar than Greece, with just one payment due this year.

It is for 10.1 billion euros in June, according to the IGCP debt agency, and the money is already there from the bailout.

Greece's has total of 33 billion euros in redemptions this year.

Next year is the same story. In 2013 Portugal has one payment, of 9.7 billion euros in September. Greece has 22 billion euros in redemptions next year.

Portugal's overall debt levels are also considerably lower than Greece at about 100 percent of gross domestic product compared with the 160 percent that Athens is struggling to slash.

"The structure of redemptions is very comfortable," said Rui Constantino, economist at Santander in Lisbon. "This year's redemption is covered by the bailout."

SOME BOND MARKET RESPITE

There was some respite in bond markets on Tuesday as Portugal's 10-year bond yield dropped 62 basis points to 16.75 percent. But the yield is still 320 basis points higher than where it stood at the start of the month and traders are demanding a record payment up front to insure Portugal's debt.

Portugal's bond yields are now at levels where Greek ones stood in August. Anything over 7 percent is generally considered unsustainable.

Paula Carvalho, economist at Banco BPI, said considering that Portugal's short-term redemptions are covered it is premature to consider any extension of emergency lending.

"On the domestic side, the government is very determined to meet the budget goals," said Carvalho.

Portugal has also managed to finance itself at reasonable levels at its regular treasury bill auctions -- which it has continued to carry out despite the bailout.

There will be an important test on Wednesday when Lisbon issues up to 1.5 billion euros of 3- and 6-month treasury bills.

However, Portugal's economic challenges remain formidable -- the economy entered a second year of recession in 2012, with the contraction expected to be the deepest in decades at more than 3 percent, as austerity bites.

Under the bailout, the government must cut the budget deficit to 4.5 percent of gross domestic product after meeting last year's goal of 5.9 percent only thanks to a one-off transfer of banks' pension assets to the state.

Elisabeth Afseth, fixed-income analyst at Investec Capital Markets in London, says she is doubtful Portugal will manage without having to seek new emergency funding, adding that a lot will depend on European politics.

"The question is if Athens is unique or not," she said. "I am not surprised at what has happened to Portuguese bonds."

Passos Coelho has made clear he considers Greece the biggest risk, both for his country and for Europe. He has said he cannot control "external" factors, in reference to contagion from Greece, but will do everything in his power at home to fix the economy.

A disorderly, or 'hard' default, by Greece could still unleash more fears about Portugal.

"The risk (for Portugal) is on the external side, it depends a lot on how the Greek question is resolved," said Carvalho.