* Lisbon agrees 4.9 bln BES bailout after weekend
* Portuguese bond yields slip 1.4 bps
* Italy, Spain bond yields 3 bps lower
By Emelia Sithole-Matarise
LONDON, Aug 4 Portuguese bond yields slipped on
Monday after Lisbon agreed a 4.9 billion euro ($6.6 billion)
bailout of its biggest bank in a plan that reassured debt
investors there would be no wider strain on public finances.
After frenzied weekend discussions between Portuguese and
European Union officials, Lisbon agreed to rescue Banco Espirito
Santo, just months after the country exited an
Portugal's central bank, which only days ago said that BES
could be recapitalised by private investors, said the plan would
involve no cost to the public purse because the loan would be
The Portuguese government loan for the BES rescue will use
up a large chunk of the 6.4 billion euros left over from a fund
earmarked to aid the country's banks as part of its EU/IMF
Portuguese 10-year bond yields fell 3.3 basis
points to 3.68 percent as many in the market saw the BES
problems as essentially under control for now. The yields rose
around 20 bps last week to a high of 3.78 by Friday as BES edged
closer to a state bailout after unveiling massive losses and had
its top officials suspended for suspected harmful management.
"The market seems to be mostly relieved that we are seeing a
clear cut decision by Portugal now on the situation on BES,"
said Christian Lenk, a strategist at DZ Bank.
"I doubt we will see some kind of systemic risk stemming
from the BES affair ... Of course it would have nice for BES to
get money from private investors but given the (strong) cash
position of the Portuguese government and its ability to tap
markets for capital, I don't see the danger for public
RATINGS UPGRADES HELP
Yields on Italian and Spanish 10-year bonds were 5 and 4 bps
down at 2.71 and 2.51 percent
respectively with strategists seeing little risk of the
contagion that unsettled markets in early July when the BES
troubles first came up.
The European Central Bank's ultra-easy monetary policy,
which it is expected to reiterate at its meeting on Thursday,
and fresh injections of cheap four-year loans later this year
are supporting demand for peripheral euro zone bonds.
Greek yields were also lower at 6.07 percent
after Moody's upgraded its ratings by two notches to Caa1,
citing its improved fiscal position. Moody's also upgraded
Portugal's ratings a week ago, dismissing concerns that troubles
at BES could spread.
Rabobank strategists said the positive rating actions as
well as historic low borrowing costs for the euro zone weaker
issuers compounded the positive sentiment in the bond market.
"All of this means we overall remain positive on peripheral
spreads though caution that the significant compression that has
already been seen means that momentum is likely to be less going
forward," they said in a note.
(1 US dollar = 0.7450 euro)
(Editing by Toby Chopra)