Saturday 20 January 2018

Portugal's borrowing costs fall as €6.6bn bond swap eases debt burden

Antonio Pires De Lima, Portugal's economy minister
Antonio Pires De Lima, Portugal's economy minister

Prices for Portuguese government bonds rose after the country slashed its debt repayment bill for 2014 and 2015 yesterday.

Bondholders agreed to exchange €6.6bn of the short-maturity bonds for debt falling due in 2017 and 2018.

The country's borrowing costs fell after its debt agency convinced investors to swap bonds due to be repaid in June next year and October 2014 and 2015, for debt due to be redeemed in October 2017 and June 2018.

It was seen as a very encouraging move for Portugal, which has an EU IMF bailout deal that is due to end in June, but needs to return to the bond markets to secure its exit.

"Given the large amount of 2014-2015 bonds repurchased, we see the exchange auction as very positive for Portuguese debt," said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London.

"This reduces Portugal's near-term funding risk significantly and is therefore credit-positive for Portugal in view of its exit from the current aid programme."

The yield, or return, investors demand to lend to Portugal for five years fell to 4.81pc after the deal.

The bond swap deal cuts €6.6bn of repayments from the €27bn the country would otherwise have to pay back over the next two years.


Portugal held a similar bond exchange in October 2012 when it swapped €3.76bn of 3.1pc securities due in September 2013 for the same value of 5.12pc notes maturing in October 2015.

"It will certainly be welcomed by the market as a first step for regaining full market access," Michael Leister, a senior rates strategist at Commerzbank AG in London, said of the debt exchange before the results were made public.

Spanish bonds also strengthened, after it posted the first decline in jobless claims in November since at least 1996 – a sign that economic activity may have stabilised after a five-year slump.

The yield on Spain's 10-year bonds dropped to 4.12pc – compared to 3.5pc to lend to Ireland.

Volatility on Belgian bonds was the highest in euro-area markets yesterday, followed by those of Finland and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Irish Independent

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