In a Wednesday auction of its 10-year bonds, Portugal got two pieces of good news: buyers were eager to scoop them up and the yield dropped.
In a sale that saw demand higher than supply by 3.2 times on 10-year maturity paper and 2.6 times on 4-year, Portugal successfully negotiated what many saw as a potential for further debt woes in Europe. Reuters quoted Orlando Green, debt strategist at Credit Agricole in London, saying, “I think Portugal has passed this test, though of course the pressure is not off just yet. There was good volume sold, right at the top of the indicative amount.”
Portugal sold 1.249 billion euros ($1.62 billion) in the two maturities. The initial offer had been set at 1.25 billion euros.
Fernando Teixeira dos Santos, the nation’s finance minister, said in the report that 80% of the demand had come from outside Portugal. He added that the country would continue to bring in its own financing. Portugal has resisted asking for a bailout from the European Union (EU) and International Monetary Fund (IMF) despite reported pressure from other nations to do so.
Green further stated, “The strong demand shows that there is still appetite, and it shows there are sufficient investors out there who think Portugal and the euro zone can solve the country's problems before a possible bailout.”
The June 2020 bond saw its yield fall to 6.716%; in November, it had been 6.806%. The October 2014 bond, while up from 4.041% in the October 2010 auction to 5.396%, was lower than the yield on the secondary market.
Harvinder Sian, RBS rate strategist in London, credited the drop in yield to the actions of the European Central Bank (ECB) earlier in the week; on Monday the ECB had stepped in to buy Portuguese bonds on the secondary market.
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