UPDATE 2-Portugal readies debt agency for bond market return

Thu Jan 17, 2013 9:45am EST

* Issuance authorisation comes after successful short debt sale

* Newspaper says 5-year bond issue being readied

* Analysts see good chance of market return in a few months

By Andrei Khalip

LISBON, Jan 17 (Reuters) - Bailed-out Portugal has authorised the country's debt agency to tap into improving market sentiment by issuing bonds and bills with an eye to a full return to markets "as soon as possible".

Government spokesman Luis Marques Guedes said on Thursday there was no set schedule or amounts for any debt issues yet.

"(But) it means Portugal can go to the markets at any moment," he said.

He would neither confirm nor deny a report in the Diario Economico newspaper that Portugal is preparing to issue a 5-year syndicated bond in the next few days.

"The government is doing everything ... to regain investor confidence for Portugal to return to the markets as soon as possible," Guedes said, adding that favourable results of short-term debt auctions have contributed to these efforts.

On Wednesday, Portugal sold 2.5 billion euros of 3-, 12- and 18-month treasury bills at much lower yields than at previous auctions, a sale that Prime Minister Pedro Passos Coelho deemed "fantastic".

Despite the worst recession since the 1970s, investors are increasingly confident that Portugal will be able to return to the long-term bond market before September, when the country's debt needs are no longer covered by its EU/IMF bailout.

Speaking in Paris, the prime minister said the country needed to "go further in its strategy to return to the markets" and "will seek to issue long-term debt and obtain the necessary help from our partners to do so".

The International Monetary Fund approved on Wednesday disbursement of the next loan tranche to Portugal.

Portuguese benchmark 10-year bond yields dropped to 6.23 percent from Wednesday's settlement level of 6.32 percent. The yield is around its lowest levels since late 2010, before the 78-billion euro bailout agreed in May 2011.

The IGCP debt agency chief Joao Moreira Rato was in the United States on Thursday for a roadshow with investors to explain Portugal's debt strategy.

Diario Economico wrote that the final decision on the issuance of the syndicated bond would still depend on the success of the ongoing road show, next Monday's Eurogroup meeting and still-to-be-announced data on how the budget ended last year.

BOND ISSUE CAN WAIT

Although optimistic about Portugal regaining access to market funding this year, analysts were cautious about the possibility of a bond issue in the coming days or weeks.

"Sure it's a step forward in regaining access, they want to get everything in place and the IGCP can now go shooting when it deems that most boxes are ticked," said David Schnautz, debt strategist at Commerzbank in New York.

But he said he was taken by surprise by the bond issue report as the IGCP had only last week said the chances of real supply were still remote.

"They have until September and are in no real rush. Another exchange of bonds is definitely on the cards, but we expect issuance to begin at the end of the summer, maybe with two or three auctions before the end of the year ... We expect any Irish-style supply only from September," he added.

Ireland began to pave the road towards exiting its EU/IMF bailout last year, when it took advantage of a sharp fall in bond yields by launching two bond swaps, a maiden amortising bond issue and new long-term debt sales.

In October, Portugal also carried out a bond swap, exchanging debt expiring this year for a 2015 maturity.

The European Central Bank has calmed investors about debt from euro zone countries such as Portugal, saying it will, if necessary, step in and buy bonds from a country seeking a bailout.

Along with Portugal, Ireland, Spain and Italy have all been recent beneficiaries of the improved sentiment.