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Portuguese bond yields rise on report of new debt sale
February 10, 2014 / 11:41 AM / 4 years ago

Portuguese bond yields rise on report of new debt sale

* Portugal plans 10-year debt sale - Diario Economico

* Portugal aims to capitalise on investor hunger for yield

* Successful sale could bring Lisbon closer to bailout exit

By Marius Zaharia and Joshua Franklin

LONDON, Feb 10 (Reuters) - Portuguese bond yields rose on Monday after a newspaper said Lisbon planned to launch a 10-year bond via syndication this week in a further step towards regaining regular debt market access.

Diario Economico said the sale was planned for Wednesday. Officials at the IGCP debt agency were not immediately available for comment.

Portugal aims to exit a 78 billion euro ($106.22 billion) EU/IMF bailout later this year and investor demand at such debt sales will be seen as a measure of the Lisbon’s ability to secure funding without an international safety net.

Capitalising on a pick-up in growth expectations, Portugal sold 3.25 billion euros in five-year bonds on Jan. 9, drawing demand of more than 11 billion. The strong sale was a catalyst for this year’s strong rally in Portuguese bonds.

Speaking at a Reuters summit, Portuguese Deputy Prime Minister Paulo Portas said the economy may grow more than the government’s initial 0.8 percent forecast this year. It would be the first year of growth since 2010, when Portugal sank into its worst recession since the 1970s.

Portuguese 10-year yields were up 6 basis points at 5.04 percent, with the bonds underperforming their euro zone peers as investors made room in their books for the new bonds, traders said.

They were slightly above January’s 3-1/2 year low of 4.81 percent, but still one percentage point below end-2013 levels.

“Portugal ... was able to refinance itself in the market in January with a certain degree of success. I think it’s not the worst strategy to continue to test the market as early as possible,” said Christian Lenk, strategist at DZ Bank.

“Investors are still very hungry for yield.”


Philip Tyson, a strategist at ICAP, said a successful sale could lead to a further fall in yields in the near term, but this would not necessarily mean Lisbon was out of the woods.

“There are some question marks still,” Tyson said. “They had shown signs of austerity fatigue in the past, they had reforms blocked by the constitutional court and there’s a risk of (deflation) ... which would keep debt on an upward trend.”

Another worry, he said, was that the Portuguese debt market faced increased volatility during the most intense days of a sell-off in emerging markets at the end of January. Junk-rated Portugal is still not part of the major European bond indexes and its investor base includes investment funds exposed mainly to emerging markets.

Tyson expected Portugal to sell 3.5 billion euros if it the sale went ahead. Newedge analyst Annalisa Piazza expected Portugal to issue 2 billion euros. Portugal’s 2013 debt issuance target is 11-13 billion euros.

Elsewhere, Italian yields rose slightly to 3.70 percent as data showed industrial output unexpectedly fell for the first time in four months in December.

German Bund yields, the benchmark for euro zone borrowing costs, fell 0.7 bps to 1.657 percent.

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