Home News Portugal set for bond issue on road to bailout exit: analysts

Portugal set for bond issue on road to bailout exit: analysts

Published on 07/01/2014

Portugal, rescued with EU and IMF bailout funding, is set to borrow on capital markets in the next few days, seizing the opportunity of the lowest interest rates on its debt since May, analysts said on Tuesday.

“This is the right moment to test the appetite of investors for Portuguese debt, with improving prospects for growth and a better situation for the budget,” an analyst at Dif Broker Pedro Lino told AFP.

The newspaper Diario Economico reported that Portugal could launch a five-year syndicated loan this week.

Under such a procedure, the government would raise funds directly from a few selected banks, thereby reducing the risks of trying to borrow on the open sovereign debt market.

The newspaper reported that the government considered that given the current market yield on Portuguese bonds, the country could go to the market immediately.

At Royal Bank of Scotland, analyst Harvinder Sian commented: “Portugal does not want to wait long and could announce a bond issue this week.”

But some experts, including Lino, held that Portugal would wait first to see the outcome of bond issues by Ireland, which has just emerged from a bailout, and by Spain due this week.

They would also wait for a report due on Friday on the outlook for Portugal by credit rating agency Moody’s.

Portugal said in December that it intended to make several medium-term and long-term issues “in the first months of 2014” to prepare for its emergence from the bailout programme.

The programme, overseen by the International Monetary Fund, the European Union and the European Central Bank, involves aid totalling 78 billion euros ($106 billion) and is due to end on May 17.

On Tuesday, the yield on Portuguese five-year bonds fell to 4.266 percent, which is less than the rate of 4.891 percent the country had to pay at its last five-year issue in January 2013.

The national debt management agency IGCP declined to give a date for the next issue, when asked by AFP on Tuesday.

However, the head of IGCP, Joao Moreira Rato told the weekly publication Expresso on Saturday that “many investors have shown interest in issues of Portuguese debt for five and for ten years.”

At the beginning of December, Portugal successfully carried out a debt swap which reduced the amount of money it needs to raise this year to 7.1 billion euros.

The Treasury has also been successful in selling savings instruments to the public and hopes by this means to raise 2.5 billion euros this year, thereby reducing the financing requirement.

The yield on a bond indicates the interest the country concerned must offer to attract investors to provide new financing by buying bonds which carry a fixed rate of return per year to redemption, meaning repayment of the money borrowed.

When confidence in the ability of a country to repay rises, demand for existing bonds, traded on the open market, rises, and the fixed return or yield relative to the new higher price falls in percentage terms.