Business World

Saturday 18 November 2017

Portugal pays record rate of almost 6pc to borrow €1bn

Donal O'Donovan

Donal O'Donovan

PORTUGAL'S government has paid a record 5.993pc to borrow over two years, after raising €1bn at an auction yesterday.

The auction succeeded in placing the bonds with investors but at the highest borrowing rate since the country joined the euro. The yield, or interest rate, is almost 50pc higher than it last paid for a two-year bond last September.

After the auction closed, Portugal's Treasury Minister Carlos Pina said the country would not need a bailout if eurozone leaders could agree a deal to support the country that stops short of repeating the Irish deal.

"These are rates that are not sustainable in the longer term, but they are still bearable at the moment, which reinforces the need for measures at the European level," Mr Pina said.

However, Portugal is now paying the same rate to borrow from the markets over two years as the average interest rate Ireland is paying under the IMF/EU bailout, for loans of up to 10 years. Few see that as sustainable.

The yield on Irish two-year bonds hit 8pc for the first time this week and Portugal's two- year yield rate highlights how close countries are coming to the 2013 deadline when the eurozone bailout package is due to be replaced by a tougher regime. European leaders have already indicated that after 2013 bondholders are at risk of losses if countries need to be rescued by their European partners.

Nervous investors are driving up the price charged for even shorter-term bonds as a result.

The yield on Portugal's 10-year bonds hit a record high of 7.6pc just before the auction closed.

It fell back later in the day on reports that the ECB had bought bonds to support prices. The ECB was also rumoured to be in the market for Greek and Irish bonds after they hit fresh highs. The yield on Ireland's 10-year bonds hit 9.48pc yesterday and Greek bonds surged to 12.78pc at one stage.

ING Bank's Padhraic Garvey said Portugal could afford to borrow at the current high rates in the short term because a lot of its debt was taken out when prices were lower. However, he said that the longer this goes, the more it pushes up the country's average debt costs to an unsustainable high.

"I would call it more a token, a symbolic move," said bond investor Dirk Poelman, of KBC Asset Management in Brussels.

"They are putting on a brave face ... but the levels, especially at the longer maturities, are becoming unbearable," he said.

Yesterday's auction is the latest evidence of the country fighting tooth and nail to avoid accepting a bailout package, even if few if any experts believe the position is sustainable. (Additional reporting by Reuters)

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