Portugal Sells Maximum 1 Billion Euros of 10-Year Bonds as Demand Climbs

Portugal sold 1 billion euros ($1.3 billion) of 10-year bonds, garnering more demand than at previous offerings after it benefited from the European Union’s aid plan for the region’s most indebted countries.

The Lisbon-based Treasury issued the 4.8 percent bonds due 2020 to yield 4.52 percent, 181 basis points below the record reached last week at the height of the crisis, the nation’s debt agency said today. Investors bid for 1.8 times the amount on offer, up from 1.6 times at the previous two auctions. Bidding reached the maximum of the range between 300 million euros and 1 billion euros sought.

“It’s a strong auction,” said Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam. “The fact that they managed to raise the maximum amount, and the yield level, suggest investors are confident about the securities. The timing is perfect.”

Yields on the bonds of Portugal, Greece, Spain, Ireland and Italy tumbled this week after the EU crafted an almost $1 trillion bailout package with the International Monetary Fund, easing concern that the debt crisis would splinter the 16-nation union. Portuguese 10-year bonds stayed lower after today’s auction, with the yield on the benchmark security up 3 basis points at 4.67 percent. The yield reached 6.33 percent on May 7, according to Bloomberg generic data.

‘Important Test’

Countries across the euro region are struggling to cut budget deficits that ballooned as governments funded bailouts and economic stimulus measures to ease the worst global recession since World War II. Today’s auction is part of about 25 billion euros Portugal is seeking to raise this year, including as much as 22 billion euros in bonds, according to the debt agency’s website.

Portugal’s rating was lowered two steps to A-, four rungs above junk, on April 27 by Standard & Poor’s. Moody’s Investors Service said on May 10 that it may reduce the country’s ranking one step to Aa3 and can’t rule out an “adjustment” to A1, six steps above junk.

The government sold 2021 bonds in March and debt due in 2020 in April at average yields of 4.17 percent and 4.34 percent, respectively.

“The auction represented a very important test for Portugal and more in general, for periphery,” said Chiara Cremonesi, a fixed-income and currency strategist at Unicredit SpA in London. “We would judge today’s results as positive overall.”

Deficit Cut

Portugal lowered its 2010 budget-deficit target to 7.3 percent of gross domestic product, from a previous goal of 8.3 percent, Prime Minister Jose Socrates said on May 7. The gap was 9.4 percent last year, more than three times the EU limit.

Economic growth, which hasn’t reached 2 percent per year since 2001, may hinder his efforts. The government expects 0.7 percent GDP growth this year amid the lowest productivity among the 16 countries using the euro, according to EU statistics.

The economy expanded 1 percent in the first quarter from the previous three months, the National Statistics Institute said today in a preliminary report.

Portuguese bonds have lost 0.2 percent this year through yesterday, worse than all other euro members apart from Greece, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek debt has lost 8.2 percent, the indexes show.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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