(Updates prices, adds comments)
By John Geddie and Emelia Sithole-Matarise
LONDON, April 22 Portuguese debt yields fell
back towards eight-year lows on Tuesday as Lisbon prepared to
auction bonds this week, the first auction in three years.
Wednesday's 750 million-euro ($1.04 billion) sale of 10-year
bonds, which follows a series of syndicated bond offerings
since early 2013, will help show that the country can finance
itself after its planned exit from an EU/IMF bailout on May 17.
"Just as we saw last week with Greece, these bonds are just
going to be snapped up. Portgual has had a great run as it is
and this auction is the next step. It signifies that it can
stand on its own feet," said Alan McQuaid, chief economist at
A strong auction should pull down borrowing costs in
Portugal and the rest of the euro zone periphery, analysts said.
Portuguese 10-year bond yields fell 3 basis
point to 3.72 percent early on Tuesday, not far from eight-year
lows of 3.66 percent reached last week.
Other peripheral bond markets also edged back towards
multi-year lows, tightening the gap with core markets, which
came under selling pressure in thin post-Easter holiday trade.
German 10-year yields - the euro zone benchmark
- was 3 bps higher at 1.54 percent. The Greek equivalents,
meanwhile, were the best performers, dropping 10 bps to sit just
above four-year lows at 5.98 percent.
Traders said speculation that the European Central Bank will
begin an asset purchase programme to ease deflationary pressure
in the euro area was buoying appetite for riskier assets,
outweighing concerns that an international agreement to avert
wider conflict in Ukraine was faltering.
ECB executive board member Benoit Coeure said there was
further margin to reduce the main interest rate below 0.25
percent and reiterated that QE remained a policy option.
"Generally with the ECB in the background and the
possibility of QE or some form of monetary stimulus, that's
going to contain any rise in euro zone bond yields," McQuaid
The latest health check of the euro zone's manufacturing and
services sector - April flash PMIs released on Wednesday - will
be watched for clues of any potential ECB action.
Portugal's prospects for accessing funding in the markets
were "very promising", said the IMF's mission chief for the
country, Subir Lall, after Portugal passed the latest review of
its bailout programme.
The IMF praised Portugal's efforts to narrow its budget
deficit, but high unemployment and lagging competitiveness in
exports are still holding back its recovery. Those issues have
not dulled demand for its debt, however, as investors hunting
for higher returns in an environment of low official rates.
"It seems to me that investors are quite willing to finance
governments that have enormous structural problems nowadays,"
said Stephen Lewis, chief economist at Monument Securities.
Portugal's bailout is due to end on May 17, and attention
now turns to whether it will request a credit line to support
its post-bailout debt-market funding. The IMF said the country's
debt outlook "remains fragile" but made no mention of any need
for a precautionary loan.
Portugal will also be hoping its return to normal market
funding will help persuade ratings agencies to pull it out of
Fitch raised the outlook on Portugal's BB+ rating to
positive from negative at the beginning of last month, raising
the chances that the country will be lifted the one notch it
needs to regain investment grade status.
Moody's and Standard and Poor's, which rate Portugal three
and two notches below investment grade respectively, are
scheduled to review the country on May 9.
($1 = 0.7244 Euros)