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UPADTE 1-Portugal borrowing costs surge at T-bill auction
April 6, 2011 / 10:35 AM / 6 years ago

UPADTE 1-Portugal borrowing costs surge at T-bill auction

* All 1 bln euros on offer sold

* 12-month yield rises to 5.902 pct, 6-month at 5.117 pct

* Bid-to-cover strong despite bank’s threat to stop buying (Recasts, adds analysts)

LISBON, April 6 (Reuters) - Portugal sold 1 billion euros in T-bills on Wednesday, placing all it had on offer despite a threat by local banks to stop buying government debt but paying much higher yields than at previous auctions in March.

The 12-month T-bill yield rose to 5.902 percent from 4.331 percent in the previous auction three weeks ago, while the yield on the shorter maturity rose to 5.117 percent from 2.984 percent in a sale in early March.

“A bailout was very highly likely even before the auction, and it is now even more so,” said Orlando Green, debt strategist at Credit Agricole.

Banks threatened to stop buying government debt on Tuesday and urged the caretaker administration to seek a short-term loan to calm markets until a June 5 snap general election.

Portugal’s minority government resigned late last month after an opposition-dominated parliament rejected the cabinet’s latest austerity plan, triggering a sharp rise in bond yields, downgrades by ratings agencies and pushing the country closer to a bailout.

“There’s not many places on the curve for Portugal to go to to borrow, and this auction is another worrying sign with regards to the sustainability of borrowing,” said Green at Credit Agricole.

“T-bills is one thing and it’s looking bad enough, but bonds have moved to very high levels recently,” he added.

Filipe Silva, a debt manager at Carregosa Bank, said the yields came in at the levels of the secondary market, “but they are completely prohibitive”.

Demand outstripped supply by 2.6 times for the 12-month T-bills and by 2.3 times for the six-month T-bills, similar to the previous auctions, despite local banks’ ultimatum. (Reporting by Andrei Khalip, Shrikesh Laxmidas, Sergio Goncalves; Editing by Ruth Pitchford)

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