* Portugal says to exit bailout without back-up loan
* Portuguese 10-year yields pinned at 8-year lows
* Slovenia yields rise after prime minister resigns
(Updates prices, adds developments in Slovenia)
By Emelia Sithole-Matarise
LONDON, May 5 Portuguese bond yields fell on
Monday after Lisbon said it would exit its international bailout
programme later this month without a back-up loan, a bold step
for a country that two years ago was thought to be at risk of
defaulting on its debts.
Like Ireland, which in December became the first euro zone
country to exit a bailout, Portugal aims to make a clean break
from its financial support.
Lisbon has been helped by an easing of the wider euro zone
debt crisis, which has spurred yield-hungry investors' appetite
for the region's lower-rated government bonds.
Portugal's brighter prospects contrast with smaller euro
zone member Slovenia which has been thrown into political
uncertainty after Prime Minister Alenka Bratusek resigned after
losing her party's leadership 10 days ago.
Portuguese 10-year bond yields fell 2 basis points to 3.61
percent, their lowest since 2006, according to
Reuters data, outperforming other euro zone bonds in thin trade
due to a holiday in Britain - Europe's busiest financial centre.
Its yields are now down to just a fraction of the near
17-percent peak they hit at the height of the debt crisis in
"It's a bold move by Portugal to move out without asking for
a precautionary credit line, but the government is confident
that it can get funding from the market," ING strategist
Alessandro Giansanti said.
"They are already funded for this year and doing pre-funding
for next. That goes alongside an improvement in periphery (euro
zone states) which is helping the smaller countries, and as long
as the mood from investors remains positive for risky assets,
that's helping Portuguese government bonds," he said.
The country held its first bond auction in three years
successfully last month, paying a record low yield that was seen
as a vote of market confidence and a boost for its chances of
cleanly exiting its bailout on May 17.
The government has won back confidence by sticking to the
austerity policies and reforms required as part of the bailout
it took in 2011, investors say.
The drop in its borrowing costs to multi-year lows continues
a trend of sharp declines since 2012 driven by signs the euro
zone crisis is abating as well as by the prospect of European
Central Bank asset purchases and by Portugal's own return to
economic growth and lower deficits after a brutal recession.
RATING REVIEWS EYED
Some in the market, such as Commerzbank strategists, said
these improvements might prompt upgrades to the country's credit
rating. All three major rating agencies - Moody's, Standard &
Poor's and Fitch - have junk ratings on Portugal.
Moody's, which assigns the country its lowest rating of Ba3,
and S&P are due to announce the results of their reviews of
Portugal's creditworthiness on Friday.
"Reading what it would take to upgrade Portugal, we expect a
one-notch upgrade with a positive outlook in our base case
scenario. At the very least, Moody's should lift the outlook to
positive," Commmerzbank strategists said in a note.
Fitch already has a positive outlook on Portugal and S&P is
expected to follow suit.
"The prospect of Portugal at least carrying three positive
outlooks by the end of the week should not just help defending
current PGB (Portuguese Government Bond) yield levels but should
also open the door for another leg lower," Commerzbank said.
Slovenian 10-year bond yields rose 7 bps to 3.53
percent after Bratusek's resignation as premier, paving the way
for early elections. Bratusek, under whose government the
country narrowly avoided an international bailout last year,
said she hoped the elections would be held by the summer.
Analysts said the political uncertainty may slow or even
halt plans to sell off state assets but said Slovenia was
unlikely to need outside financial help for now.
(Editing by Louise Ireland)