* 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 and Emelia Sithole-Matarise
LONDON, Dec 3 Portuguese government bond yields
fell sharply on Tuesday after a debt exchange drew stronger
demand than some in the market had expected, reducing redemption
payments next year when Lisbon hopes to emerge from its bailout.
Portugal swapped 6.6 billion euros in bonds expiring next
year and in 2015 for longer maturities, in an exchange analysts
said demonstrated improved market confidence.
"It was a big success as it really helps lower the
refinancing needs over the next two years ... which is also very
good for Portugal when it's about to bargain with the troika (of
official lenders) about the (new aid) framework it will need,"
said Commerzbank strategist David Schnautz.
"It's also a show of market confidence that they are OK with
medium-term exposure rather than only short end."
Portuguese 5-year yields fell 19 basis points
to 4.92 percent and were poised for their biggest daily fall in
nearly a month. Ten-year yields were 10 bps lower
at 5.9 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.
NOT QUITE IRELAND
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 complete 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
It aims to emulate Ireland which is on track to end its
rescue programme later this year, though Dublin has said 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.
Analysts said the bond swap would help Portugal to move on
but it would still be prudent for the government to negotiate a
"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
Investors were expected to be cautious before the European
Central Bank meets on Thursday and the U.S. report 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 reduce its monthly monetary stimulus.