(Updates with amounts outstanding, comments, bond yields)
LISBON Feb 27 Portugal bought back 1.32 billion euros ($1.8 billion) in bonds on Thursday, in an operation aimed at easing its heavy debt redemption schedule this year and next as it prepares to exit an international bailout programme in May.
The IGCP debt agency said it repurchased 293.2 million euros of October 2014 bonds at an average price of 101.971 relative to par, as well as 1.027 billion euros of October 2015 bonds at a price of 103.437.
Portuguese bond yields have fallen sharply this year to levels last seen in 2010, a year before the EU/IMF bailout, as confidence has grown that the country can return to financing itself in bond markets as growth returns after the worst slump since the 1970s.
"The amount was not higher only because investors are not scared about Portuguese debt in the future, which is positive," said Filipe Silva, debt manager at Banco Carregosa in Porto.
"The treasury is alleviating debt amortization pressure for 2015, which makes sense since the treasury has liquidity."
Buying back maturing debt should help the country ease any concerns investors may have that Portugal will struggle to meet bond redemptions after it exits its bailout programme.
Some economists think Portugal still needs a precautionary credit line after the bailout to soothe those concerns, but operations like the one on Thursday will help.
"There is still some way to go to understand how Portugal will exit the bailout, but there are indications of a clean break and if things continue this way we should expect they will manage it," said Orlando Green, debt strategist at Credit Agricole.
The country has already met all its financing needs for this year with the help of two bond issues, and the finance minister has said Lisbon is now preparing to pre-finance its needs for 2015.
The IGCP said that after Thursday's repurchase operation, 5.577 billion euros remains outstanding of the October 2014 bonds and 8.215 billion euros is left of the October 2015 bonds. There is still another bond to be redeemed in June this year, worth 4.5 billion euros.
Last December Portugal carried out a debt exchange worth a hefty 6.6 billion euros, intended to lengthen its debt profile.
Portugal's benchmark 10-year bond yields dropped to 4.84 percent on Thursday in the secondary market from Wednesday's settlement level of 4.88 percent. ($1 = 0.7317 euros) (Reporting By Axel Bugge, additional reporting by Sergio Goncalves, Daniel Alvarenga and Andrei Khalip)