* Lisbon auctions first bond since bailout began in 2011
* Yield of 3.58 percent is record low for 10-year bond
* Portugal better placed for clean bailout exit
* PM says no decision yet on possible standby loan
(Adds fresh comments, updates prices)
By Andrei Khalip and Emelia Sithole-Matarise
LISBON/LONDON, April 23 Portugal sold its first
bonds at auction in three years on Wednesday, paying a record
low yield that was seen as vote of market confidence and a boost
to Lisbon's chances of making a clean break from its bailout
At just less than 3.6 percent and with demand easily
outstripping the 750 million euros ($1 billion) sold, the
results suggested Portugal would enjoy strong investor support
if it chooses to leave the rescue programme without the backstop
of a standby European Union loan.
Whether Portugal follows Ireland in making a clean exit
without a backup is a focal point of discussions with its
international lenders, which began their last evaluation of its
compliance with the terms of the programme on Tuesday.
"The more money they can raise at very low interest rates
the more it gives them an incentive to go for a clean exit,"
said Lefteris Farmakis, a rates strategist at Nomura.
Prime Minister Pedro Passos Coelho said the auction gave the
country "strong confidence about the future", though the
government was still "calmly" weighing its options concerning a
possible precautionary credit line.
It would reach a decision by May 5, when Europe's finance
ministers are due to meet, he told an economic conference.
Debt agency IGCP placed Wednesday's bond at an average yield
of 3.5752 percent, the lowest on record in a Portuguese auction
of that maturity and significantly lower than the secondary
market yield of 3.68 percent registered just beforehand.
Demand outstripped the amount placed by 3.5 times.
"It's now proven that Portugal can finance itself in the
tough and rough normal market without support from banks," said
Filipe Silva, head of debt at Banco Carregosa in Porto.
"The yield below the secondary market is very important as
it shows that investors do not demand a premium for holding
In the market, the 10-year yield hit an
eight-year low of 3.624 percent immediately after the auction,
according to Reuters data, before paring some of those gains.
As the European session drew to a close, the bonds were
still 5 basis points tighter on the day at 3.66 percent,
outperforming all other euro zone sovereign debt.
TURNING THE CORNER
The drop in yields continued a trend of sharp declines since
2012 when they peaked at over 17 percent, driven by signs the
euro zone crisis is abating, prospects of European Central Bank
asset purchase and Portugal's own return to economic growth and
lower deficits after a brutal recession.
As recently as February, Portugal paid 5.112 percent in a
syndicated 10-year bond sale.
"Portugal has turned at least a big part of the corner,
considering two or three years ago it was deemed practically
insolvent," said Michiel de Bruin, head of global rates at F&C,
an asset manager which holds Portuguese bonds.
The latest leg lower in the country's yield took its premium
over investment grade-rated Italy and Spain to around 60 basis
points, a gap that many expect to narrow further as investors
price in the prospect of credit agencies lifting Portugal's
ratings in coming months.
Unlike Ireland, which exited its bailout in December without
a supplementary credit line, Portugal managed to resume bond
auctions before the end of its 78-billion-euro rescue programme.
Ireland did not hold its first post-bailout auction until
last month, though at 2.967 percent its yield was much lower.
Portuguese debt yields are close to where Irish yields were
about a month before the end of Dublin's bailout.
"It [Wednesday's auction] is significant because Portugal's
interaction with the market is now more advanced than say
Ireland's was when it exited the bailout and I see very little
reason why Portugal will not pursue a clean exit," said Michael
Michaelides, rates analyst at RBS.
Other peripheral euro zone bond yields fell in Portugal's
wake after the auction, with Greece the only country to buck
that trend as traders reported some investors were selling the
sovereign's bonds to make room for a debt sale by the National
Bank of Greece scheduled for Thursday.
Speculation that the European Central Bank will begin an
asset purchase programme to ease deflationary pressure in the
euro area was also driving investor flows into peripheral bonds,
where returns are relatively higher than in lower risk bonds.
Wednesday's debt sale was intended to help pre-fund Portugal
"We are not desperate like three years ago, when we didn't
have funding for one month. Now we have cash for a year," Passos
($1 = 0.7248 Euros)
(Additional reporting by Sergio Goncalves and Daniel Alvarenga
in Lisbon and John Geddie in London.; Editing by John