Portugal’s Borrowing Costs Rise to Nine-Month High at Bill Sale

Portugal’s borrowing costs increased to the highest since October at an auction of 1.2 billion euros ($1.58 billion) of 12-month bills.

The securities due in July 2014 were allotted at an average yield of 1.72 percent, the debt management agency said. That compares with 1.232 percent at a previous auction of 12-month bills on May 15, and is the highest since Portugal sold the securities at a rate of 2.1 percent on Oct. 17. The auction attracted bids for 1.77 times the amount offered, compared with a bid-to-cover ratio of 2.22 in May.

Today’s sale was Portugal’s first in four weeks, a period during which the finance minister resigned and a rift in the governing coalition emerged. The two coalition parties are holding a fourth day of talks with the main opposition party today as they seek an agreement on how to meet the conditions of the country’s bailout program.

“The internal political deadlock may have weighed a little on the 12-month bill yield,” Filipe Silva, director of asset management at Banco Carregosa SA in Oporto, northern Portugal, said in an e-mailed note.

The two-year note yield was little changed at 5.44 percent as of 2 p.m. London time. Ten-year (GSPT10YR) bond yields rose five basis points, or 0.05 percentage point, to 7.20 percent, up from 6.39 percent on July 1, the day before the rift in the coalition emerged. The 10-year rate breached a seven-month high of more than 8 percent on July 3. The country pays 3.2 percent on its bailout loans.

Bond Issuance

The debt agency also sold 300 million euros of bills due in December at 1.045 percent, attracting bids for 4.4 times the amount offered. The IGCP, as the debt agency is known, said on July 12 that the total indicative amount for today’s auctions was between 1.25 billion euros and 1.5 billion euros.

Portugal sold 10-year bonds on May 7, the first such sale in more than two years. The nation had stopped selling bonds until this year after requesting a 78 billion-euro bailout from the European Union and International Monetary Fund in April 2011 following a surge in debt levels and borrowing costs. Portugal is ranked below investment grade by Fitch Ratings, Moody’s Investors Services and Standard & Poor’s.

The debt agency also said on July 12 that it plans to resume “regular issuance” of bonds “only if market conditions are conducive.” Financing needs for 2013 are “fully covered” and in the second quarter the debt agency started to “pre-fund” for borrowing needs in 2014, according to the IGCP.

Aid Program

The eighth review of Portugal’s progress on meeting the terms of its aid program has been pushed back to the end of August or the start of September due to the political situation, the Finance Ministry said on July 11. The review had been due to start on July 15.

On March 15, the government announced less ambitious targets for narrowing its budget deficit as it forecast the economy will shrink twice as much as previously estimated this year. It targets a deficit of 5.5 percent of gross domestic product in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal forecasts debt will peak at 123.7 percent of GDP in 2014.

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

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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