* Portugal swaps 6.6 bln euros of 2014/2015 bonds
* Portuguese yields fall sharply after swap
* Other euro zone yields dip before ECB, U.S. jobs data
By Ana Nicolaci da Costa
LONDON, Dec 3 Portuguese government bond yields
fell sharply on Tuesday after a debt exchange met stronger
demand than some in the market had expected, easing redemption
payments next year when it hopes to exit its bailout programme.
Portugal swapped 6.6 billion euros in bonds expiring next
year and in 2015 for longer maturities, in an exchange analysts
said demonstrated the market's improved confidence in the
"The result they got this morning is quite positive," Luca
Cazzulani, strategist at UniCredit said.
"Portuguese bonds are actually posting a rally, reflecting
the fact that after this morning's exchange, next year's funding
is going to be less challenging."
Five-year Portuguese yields fell 22 basis
points to 4.89 percent and were poised for their biggest daily
fall in nearly a month. Ten-year Portuguese yields
were 11 bps lower at 5.89 percent.
Equivalent Spanish yields fell 4.2 bps to 4.12
percent, falling in line with most other euro zone debt.
Analysts had expected the swap to go smoothly after markets
made room for the exchange by selling Portuguese debt on Monday
and as easy monetary policy and ample liquidity continue to
support lower-rated bonds.
Portugal's treasury secretary told Reuters on Monday Lisbon
intends to issue new bonds early in 2014 and a debt exchange
would be a logical first step in that direction. She said
investors were increasingly interested in Portuguese debt.
"The market thought that if they did 3 (billion euros) that
would have been a good result, so 6.6 is good for Portugal in
terms of their attempt to exit the bailout," one trader said.
Lisbon hopes to exit its 78 billion euro European
Union/International Monetary Fund bailout by mid-2014 - possibly
with a back-up line of credit - although a number of budgetary
Analysts said the bond swap would facilitate Portugal's bid
to exit its programme but that it would still be prudent for the
country to do so with the backing of a credit line.
"Given the level of yields where we are now, a backstop for
Portugal makes much more sense than (it did) for Ireland,"
Sunrise Brokers head of fixed income research Gianluca Ziglio
Ireland said in November it would make a clean break from
its EU/IMF bailout, forgoing a precautionary credit line that
some of its European partners had wanted it to take.
Investors were expected to be cautious before the European
Central Bank meets on Thursday and the U.S. reports on non-farm
payrolls on Friday.
While the ECB is expected to remain on hold after a surprise
rate cut in November, the jobs number will help determine
investor expectations about when the Federal Reserve will start
to withdraw monetary stimulus.