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Portugal to test market with 10-year bond issue

Portugal is preparing an issue of 10-year bonds, the state debt management agency said Monday, in what will be a key test of whether it can cleanly exit its bailout in May.

A spokesman for the IGCP agency told AFP that six banks had been mandated to handle the syndicated issue, which will take place in the near future when market conditions permit.

A successful placement of 10-year bonds would demonstrate that Portugal can finance itself at affordable rates on the markets when it exits its three-year 78-billion-euro ($106-billion) bailout from the EU and IMF ends in May.

Portugal aims to seize on improving market sentiment which has seen the rate of return on its 10-year bonds fall below five percent on the secondary market, from above six percent at the beginning of the year.

Last month Portugal enjoyed strong demand for an issue of 5-year bonds, raising 3.25 billion ($4.4 billion) euros at a lower rate of 4.657 percent.

That issue, plus a voluntary bond swap carried out at the end of last year, means Portugal’s remaining funding needs for the year is just 3.85 billion euros.

During its last auction of 10-year bonds in May 2013, Portugal raised 3 billion euros at 5.669 percent with demand at over 10 billion.

Portugal has not made a final decision as to whether or not it will seek a precautionary arrangement from the EU’s ESM bailout fund.

Such a precautionary arrangement would allow the European Central Bank to step in and buy Portugese bonds in case of a deterioration on the debt market.