Portugal's Borrowing Costs Fall at Sale of January 2011 Government Bills

Portugal’s borrowing costs fell at a sale of 762 million euros ($962 million) of six-month bills after the government said last week that it aims to narrow its budget deficit faster than previously planned.

The securities maturing Jan. 21, 2011, were issued at an average yield of 1.947 percent, data from the debt management agency showed today. That compares with an average yield of 2.955 percent at a May 5 auction of six-month debt.

“The yields look to be much lower,” said Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam. “That’s a good signal.”

Portugal said on July 2 that it aims to meet the European Union’s limit for a budget deficit of 3 percent of gross domestic product in 2012, a year earlier than the government’s previous plan. The nation’s deficit reached 9.3 percent last year. Ireland had the biggest shortfall in the euro region at 14.3 percent of GDP, followed by Greece with 13.6 percent and Spain with 11.2 percent.

Today’s auction attracted bids for 1.8 times the securities offered, compared with a bid-to-cover ratio of 1.9 in the May sale. The IGCP, as the debt agency is known, said on July 1 that the indicative amount for today’s sale was 600 million euros.

Borrowing costs increased at bill auctions earlier this year as Greece’s debt crisis stoked investor concern that euro- area nations such as Spain and Portugal would struggle to pay their debts.

The EU agreed on a 750 billion-euro aid package in May and the European Central Bank pledged to buy bonds in a bid to contain the crisis following a surge in the yields.

Portugal’s borrowing costs climbed at bill auctions on June 2 and June 16 and at a June 23 bond sale.

To contact the reporters on this story: Joao Lima in Lisbon at jlima1@bloomberg.net.

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