* Bets Moody's could upgrade ratings outlook support demand
* Moody's decision due later in day, S&P on Jan. 17
* German Bunds up before U.S. non-farm payrolls
By Emelia Sithole-Matarise
LONDON, Jan 10 Portuguese bond yields hovered
near seven-month lows on Friday after Lisbon's first 2014 debt
sale drew solid demand and ahead of a potential upgrade of the
country's ratings outlook later in the day.
Moody's announces its decision on Portugal's credit standing
later on Friday under a new EU-regulated schedule of rating
reviews. Earlier, S&P affirmed Germany's triple-A sovereign
ratings and left them on a stable outlook.
New European Union rules came into force this month making
credit agencies operating in Europe to say when they will review
a country's rating.
Standard & Poor's will release its assessment on Portugal on
Jan. 17 and while many market participants say an upgrade of
Portugal's "junk" status was unlikely, they expected both
Moody's and S&P to raise their outlooks.
This, combined with the European Central Bank's ultra-easy
accommodative monetary policy - affirmed on Thursday - has
fueled demand for the euro zone's higher-yielding bonds,
enabling Portugal, Ireland and Spain to successfully launch
their first 2014 debt sales this week.
Portuguese 10-year yields were marginally up
at 5.45 percent as the market paused for breath after a fall of
almost 70 basis points so far this year and before the Moody's
decision and U.S. jobs data. Analysts see scope for further
falls in the yields.
"It's a bit much to expect an upgrade (of Portuguese
ratings) from "junk" but there must be some scope for Moody's to
upgrade its outlook from stable to positive which may add some
modicum of additional support to the bullish momentum in
Portugal," said Rabobank strategist Richard McGuire.
Portugal's 10-year debt premium over benchmark Germany has
fallen almost one percentage point since the end of December to
355 basis points, a far cry from the over 1,500 basis points
scaled at the height of the debt crisis in early 2012.
Lisbon is keen to take advantage of benign market conditions
to demonstrate it can access markets before it follows Dublin
and give up its international bailout support as planned in
Many analysts, however, doubt Portugal can manage for now
without some sort of precautionary back-up lending programme,
unlike Ireland which made a 'clean exit' from its bailout.
"It is by no means certain that Portugal will be able to go
it alone when it leaves the tight embrace of the troika, as
Ireland did in December last year," said Gavan Nolan, a credit
derivatives analyst at data provider Markit.
"It might even need a second bailout, though the more likely
scenario is that it will request a precautionary credit."
Elsewhere in the market, the Bund future was up 9
ticks up at 139.65 after ECB President Mario Draghi clearly
spelt out what could trigger further monetary easing though the
gains were capped before the U.S. jobs report.