Portugal sold 2.5 billion euros ($3.33 billion) of five-year bonds through banks, the first offering of that maturity in almost two years as it makes progress in regaining access to long-term debt markets.
The 4.35 percent bonds due in October 2017 were allotted at a yield of 4.891 percent and attracted 12 billion euros of bids, Secretary of State for Treasury Maria Luis Albuquerque said yesterday. About 93 percent were sold to overseas investors, including 33 percent to the U.S., 29 percent to the U.K. and 9 percent to Asia, the debt agency said. About 60 percent were taken up by asset managers and 24 percent by hedge funds.
“We’re interested in rebuilding all of Portugal’s yield curve, which will imply issuing 10-year debt at a given time and when adequate,” Albuquerque said at a press conference in Lisbon. Portugal will conduct other bond sales, she said, without providing dates.
The country’s five-year yield fell to 4.77 percent today, the lowest since December 2010, before rising seven basis points, or 0.07 percentage point, to 4.97 percent at 2:32 p.m. in London. The yield has declined from a record 23 percent in January 2012.
Ten-year bonds yielded 5.98 percent. The extra yield investors demand to hold the securities instead of similar- maturity German bunds has narrowed to 4.45 percentage points from a euro-era record 16 percentage points in January 2012.
Governments in the nations are seeking to tap resurgent demand for their debt amid optimism Europe’s three-year-old financial crisis is abating. While Portugal has maintained bill sales since requesting a bailout in April 2011, it hadn’t offered bonds.
Portugal hired Barclays Plc, Banco Espirito Santo SA (BES), Deutsche Bank AG and Morgan Stanley for yesterday’s sale, the debt agency said on its website. The country’s securities are rated junk by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service.
“With this issue, Portugal is taking a further step to regaining full access to the debt markets and restoring its credibility,” Tiago Veiga Anjos, an analyst at Banco BPI SA (BPI) in Oporto, Portugal, wrote today in a research note.
Portugal requested a bailout from the European Union and the International Monetary Fund in 2011 after a surge in debt and borrowing costs. The government is seeking to narrow the deficit to 4.5 percent of gross domestic product this year and will cut the deficit below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap.
Portuguese borrowing costs fell when it sold a combined 2.5 billion euros of three-, 12- and 18-month bills on Jan. 16, its first auction of 2013. The debt agency allotted the 12-month securities at an average yield of 1.609 percent, the lowest since April 2010.
Portugal has to meet a 5.8 billion-euro bond redemption in September without relying on the EU-led rescue program, which lasts until the middle of 2014. The IMF forecasts the nation’s debt will peak at 122.3 percent of GDP in 2014, assuming it returns to bond markets in the middle of this year and yields on medium- and long-term debt decline to 5 percent from 7 percent.
Portugal’s previous bond auction was in April 2011 when it sold 1.6 billion euros of securities due in June 2012 at an average yield of 5.793 percent. The debt agency on Oct. 3 exchanged 3.76 billion euros of notes maturing in September 2013 for the same value of those due in October 2015, reducing its 2013 repayment burden.
Spain sold 7 billion euros of 10-year bonds on Jan. 22, a sale Economy Minister Luis de Guindos said had the biggest demand in the nation’s history. Ireland allotted 2.5 billion euros of bonds on Jan. 8 and Italy used banks for a 15-year debt sale on Jan. 15.
European Central Bank President Mario Draghi has said the ECB may undertake debt purchases for euro-area nations under bailout programs when they regain bond-market access.
The measures, called Outright Monetary Transactions, “would not apply to countries that are under a full-adjustment program” until they have “full-market access,” Draghi said Oct. 4. The OMT isn’t a replacement for primary-market access, he said.
“Albuquerque hinted that a 10-year issue could be next, after which Portugal may be OMT eligible,” Royal Bank of Scotland Group Plc strategists Claire Tucker and Giles Gale wrote in a note to clients. “The front-end looks attractive at current levels,” they wrote, referring to shorter-maturity Portuguese securities.
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