Portugal, in political limbo, still manages to borrow at negative rates

Portugal may be in political limbo, but still succeeded in borrowing money at negative rates Wednesday, a reassuring comeback for a country which had to be bailed out during the eurozone debt crisis.

When a country issues debt at negative rates, investors pay for the privilege of lending the government money rather than receive any interest.

Portugal borrowed 1.1 billion euros for one year at an average rate of -0.006 percent, compared to 0.051 percent at the previous similar operation on September 16, according to the nation’s IGCP debt management agency.

That was the first time Portugal ever managed to place one-year bonds at a negative interest rate.

Interest rates on short-term government debt plunged into negative territory for many eurozone members at the start of the year as the European Central Bank neared its launch of a massive bond-buying stimulus programme.

They crawled back up over the summer, but have fallen again recently as the ECB has signalled it will expand the stimulus programme as inflation hovers around zero.

The prospect of deflation means that some investors are willing to accept slightly negative interest rates.

Portugal also sold 400 million in 6-month debt at -0.018 percent, down from 0.006 percent on September 16.

Demand was more than double the 1.0 to 1.25 billion in bonds initially on offer.

“It’s a record, these are the lowest rates Portugal has ever obtained,” said Filipe Silva, an analyst at Banco Carregosa. “Once again, instability has had no impact on” financing the government.

But analysts said the rate on longer-term government debt, a more reliable indicator of investor confidence, was reflecting the increased political risk.

The rate on Portugal’s 10-year bonds on the secondary market, where existing debt is traded, has climbed from 2.29 percent to 2.55 percent since the inconclusive election on October 4.

A leftwing coalition ousted a minority conservative government last week, leaving the country in limbo.

But current rates are still far below the 7 percent level that forced the Portugese government to seek a three-year 78-billion-euro ($83 billion) bailout in 2011.

Portugal’s government has had no difficulty financing itself on debt markets since exiting the bailout in May last year.