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Portugal says it will return to mainstream bond market

Published on 17/04/2014

Portugal on Thursday said it plans to make its first pre-announced government bond auction since April 2011, ahead of exiting its bailout programme next month.

The national debt management agency IGCP said it would make a regular, long-term bond issue on Wednesday aiming to raise 500-750 million euros ($690-1.0 billion) with a 10-year term.

The issue is Lisbon’s latest step towards returning to full market financing after it was forced to seek a rescue package from the EU and IMF three years ago.

It also comes after Greece, a fellow bailout recipient, successfully floated a medium-term bond last week after a four-year drought.

Some economists say that, with its economy no longer in recession and investor confidence in the country improving, Lisbon may follow Ireland and make a clean exit from its bailout on May 17.

Portugal three years ago entered a 78-billion-euro European Union-International Monetary Fund aid programme, which forced it to enact deep structural reforms to correct public finances and raise efficiency in the economy.

Portugal has sold various bonds via syndication since early 2013, but analysts see the resumption of regular auctions as a key move towards establishing normal market access.

These transactions have helped the Treasury to build up a stockpile of 15.3 billion euros to cover its financing needs for this year and the start of 2015.

Portugal’s debt agency announced in early April plans to hold one or two bond auctions during the second quarter of 2014 of between 500 million and 750 million per transaction.

The announcement of the first regular bond issue comes as Portugal’s 10-year bond rates continued their descent Thursday to 3.6 percent, their lowest level since early 2006.

Ratings agency Fitch earlier this month upgraded the outlook on Portugal’s BB+ rating to “positive” from “negative”, raising the prospect it may soon rejoin investment-grade ranks once it has ended its bailout.

“Portugal is making good progress in reducing its budget deficit,” the ratings agency said in a statement.

This week the government took another step to reduce its public deficit by pledging to strip 1.4 billion euros from its 2015 budget.

Despite this marked progress, Lisbon’s public debt of accumulated past deficits rose to 129.0 percent of output last year, up from 124.1 percent in 2012.

Some investors are still cautious over the health of its economy. At an auction this week of 925 million euros’ worth of year-dated treasuries, demand remained relatively low.