Tuesday 20 February 2018

Portugal pays heavily for €1bn of new debt

Donal O'Donovan

IN THE bond markets, Portugal continued a spirited defence of its access to private sector funding yesterday, but remains at risk of a bailout.

Irish bonds were better, but fears of a Greek default are back on the agenda.

Portugal borrowed €1bn from investors yesterday but paid heavily for the new debt. Greece is being battered by investors who are increasingly convinced it will come out of one three-year bailout package and be forced straight into another or risk defaulting on its government debt.

Portugal's latest 12-month borrowing comes with a yield, or interest rate, of 3.987pc compared with 3.71pc for similar debt issued on February 2.

Portugal also bought back €215m of bonds that are due to be repaid later this year. The buy-back slightly reduces the €9bn of debt it will have to repay in April and June.

It was seen by many as an attempted show of strength by the country, demonstrating its liquidity to the markets.

The markets, however, were underwhelmed by that effort and the yield on Portugal's 10-year bonds remained above 7pc for a sixth day.

Analysts say the likelihood of Portugal having to accept a rescue deal similar to Ireland's increases every day that the yield stays at that elevated level. Analysts believe if euro leaders can agree a comprehensive deal, then investors will take comfort from the notion that the debt of all euro countries becomes less risky, but politicians may be running out of time.

Padhraic Garvey of ING said he thought Portugal was doing enough to stay out of trouble, at least for now.

Greek bonds have been the weakest among what experts refer to as "Europe's stressed periphery" in recent days.

Last night, the yield on Greek 10-year bonds was 11.65pc, down slightly from the previous close, but the cost of insuring the bonds against a default rose.

The cost of protecting the Greek bonds against default hit 8.90pc -- meaning it costs €890,000 per year to ensure €10m of bonds.

The cost of insuring Irish bonds rose to just under 6pc, the highest since the end of January.

It costs 4.6pc to insure Portuguese bonds against default.

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