* Portugal says to exit bailout without back-up loan
* Portuguese 10-year yields pinned at 8-year lows
* Slovenian yields rise after prime minister resigns
By Emelia Sithole-Matarise
LONDON, May 5 Portuguese bond yields fell on
Monday after Lisbon said it would end its international bailout
this month without a back-up loan, a bold step for a country
that two years ago was seen 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, whose yields have risen since 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, matching their lowest since 2006, according
to Reuters data. The bonds outperformed their euro zone peers in
thin trade due to a holiday in Britain - Europe's busiest
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 2012.
"It's a bold and brave move and probably the right thing to
attempt," said David Keeble, global head of fixed income
strategy at Credit Agricole in New York.
"It makes it look like normality. If you look (at the moves
in the market) ... so far it's been a vote of confidence."
The country held its first bond auction in three years
successfully last month, paying a record low yield. It is now
fully funded for the year and pre-funding for 2015.
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, whose rating is the lowest at 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 defend
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 9 bps to 3.55
percent after Bratusek's resignation as premier paved the way
for early elections. Bratusek, whose government narrowly averted
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.
(Additional reporting by Marius Zaharia; Editing by Ruth