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Portugal's Borrowing Costs Double at Today's Sale of Nine-Month Securities

Portugal’s borrowing costs more than doubled at a sale of 500 million euros ($612 million) of bills amid concern the euro-region’s financial crisis isn’t abating.

The securities due February 2011 were issued at an average yield of 2.443 percent, the country’s debt management agency said today on its Web site. That compares with a yield of 1.097 percent at the previous sale of the same-maturity debt in March. The auction attracted bids for 2.3 times the amount offered, compared with a bid-to-cover ratio of 3.1 in March.

Portugal is seeking to show investors it can cut its budget deficit to meet the European Union’s limit of 3 percent of gross domestic product by 2013, from 9.4 percent last year. Bond yields in the shared-currency area have fallen after the EU announced an almost $1 trillion aid package on May 10, and regional central banks began buying government bonds.

“Yields have gone up for bills,” said Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam. “That might partly reflect lingering concern about the peripheral market. And with central banks buying bonds, perhaps investors are more willing to buy bonds than bills.”

Ten-year Portuguese bond yields were little changed at 4.72 percent as of 2:29 p.m. in London. Yields rose to 6.33 percent on May 7, the highest since at least the inception of the euro in 1999, according to Bloomberg generic data.

Spending Cuts

The Portuguese government on May 13 said it will cut wages of top government officials and temporarily raise sales, income and corporate taxes to narrow its budget deficit faster than previously planned.

Portugal aims to narrow the 2010 deficit to 7.3 percent of GDP, targets a 2011 gap of 4.6 percent and a 2013 shortfall of 2.8 percent. Earlier this year, Portugal announced additional spending cuts, including delaying some investments on railway projects and limiting state workers’ salary increases.

Before the EU rescue package, the extra yield that investors demanded to hold Portuguese 10-year debt instead of benchmark German bunds surged to 354 basis points, the highest since the euro’s debut. The premium was 181 basis points today.

Portugal sold 1 billion euros of 10-year bonds on May 12, getting more demand than at previous auctions. The country’s debt agency sold the 4.8 percent securities due 2020 to yield 4.52 percent, 181 basis points below the previous week’s record.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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