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* Portuguese debt back in favour with rates buyers
* Debt agency hopes to normalise funding schedule
By John Geddie
LONDON, May 9 (IFR) - Portugal is plotting a return to
regular bond auctions after winning back its traditional
European investor base in a sell-out EUR3bn 10-year bond
syndication this week, its first new benchmark issue since its
bailout in 2011.
Hedge funds that have circled Portugal's debt in recent
years, and which were blamed for the poor secondary performance
of a EUR2.5bn syndicated five-year tap in January, were replaced
with European rates buyers that were prevalent in Portugal deals
That has ratcheted up confidence that these investors are
back on board, and means Portugal is now keen to service them
with regular issuance in the form of auctions, something it
hasn't done since April 2011.
"Now that we been active in the curve at two points, we will
present a plan to the Ministry of Finance to try and return to
the market in a more regular fashion in the next few months,"
said Joao Moreira Rato, the chief of IGCP, Portugal's debt
Rato said Portugal hopes to return to a normalised funding
strategy that would see it issue around two auctions every
quarter to tackle its EUR14bn in medium-to-long term funding
needs in 2014, and possible additional syndicated taps.
Portugal's new 10-year, maturing in February 2024, priced at
a reoffer yield of 5.67%, with EUR10.2bn orders placed via joint
leads CaixaBI, Citi, Credit Agricole, Goldman Sachs, HSBC and
Crucially, hedge funds were allocated just 7% of the bonds,
with 69% going to asset managers, insurance companies, pension
funds and central banks.
The aftermarket performance reflected the strength of the
allocations with the bonds tightening 8bp, closing at a bid
yield of 5.59% on Wednesday.
"This is a milestone for us because we are welcoming back
our traditional investor base that used to support us before the
crisis," said Rato at IGCP.
"The cornerstone of investors that participated in this
issue were rates investors from Europe."
That stands in sharp contrast to the January tap, which was
Portugal's first debt capital markets transaction in 18 months.
Although it attracted a EUR12bn order book, 24% of the bonds
were allocated to opportunistic hedge funds.
Their short-term investment strategy was blamed for the
deal's poor secondary market performance. Having priced at a
reoffer yield of around 4.9%, it blew out to 5.4% by the middle
of February, leaving a sour taste in the mouths of some
investors that participated.
By the time Portugal decided to get down to business with a
new bond issue this week, however, the five-year was back
trading around 4% following a sustained rally across the
sovereign's curve that started in the middle of last month.
The challenge for Portugal now is to keep these investors
involved by offering them regular new supply, and auctions are
perceived as the best way to do that.
"Between the January transaction and this deal, liquidity in
the market has been decreasing. From now on we shouldn't allow
this to happen, we should be satisfying that demand," said Rato.
Having been granted seven-year extensions on its bailout
loans by the EU, and now surpassing its EUR5bn medium-to-long
term funding plans for 2013, the country has stayed on track to
exit its programme by the middle of next year despite mass
unemployment and an elevated budget deficit.
Any further issuance from Portugal this year will count as
pre-funding for 2014 when the country is required to roll over
around EUR14bn of medium- to long-term debt.
"The large spike in Portugal's funding needs in the coming
years was one of the major concerns going into 2013, but with
its successes in primary markets and the loan extensions, its
funding outlook has substantially improved," said Michael
Leister, senior rates strategist at Commerzbank.
(Reporting by John Geddie, editing by Natalie Harrison and