Portugal exchanged 6.64 billion euros ($9 billion) of bonds to reduce debt repayments due in the next two years as it tries to exit its 78 billion-euro international bailout without needing another rescue.
The swap will push back repayments on 837 million euros of bonds maturing in June 2014, as well as 1.64 billion euros of debt due in October 2014 and 4.16 billion euros of October 2015 securities, Lisbon-based debt agency IGCP said today. In their place, investors will receive about 2.68 billion euros of notes due in October 2017 and 3.97 billion euros of June 2018 bonds.
“We view the result of the exchange transaction as a big success for Portugal as it is heading out of its existing bailout program,” David Schnautz, a fixed-income strategist at Commerzbank AG in New York, wrote in an e-mail. The debt exchange “limits the near-term rollover risk,” he said.
Portugal’s government is trying to regain full access to debt markets with the end of its rescue program from the European Union and International Monetary Fund approaching in June. It forecasts that debt will peak at 127.8 percent of gross domestic product this year. The country’s 10-year yield is still higher than in May, when the rate reached the lowest since 2010 and the country last sold bonds.
“Portugal has been on the right track under its adjustment program, but the initial three-year time frame was not long enough,” Commerzbank’s Schnautz said. “Portugal should still opt for asking for a precautionary conditional credit line” from its international creditors, he said.
Portugal’s two-year note yield fell three basis points, or 0.03 percentage point, to 3.26 percent at 1:39 p.m. London time, after earlier touching a six-month low of 3.18 percent. The five-year yield dropped 17 basis points to 4.80 percent.
Before today’s swap, there were 13.6 billion euros of the 2014 notes outstanding and 13.4 billion euros of the 2015 bonds, according to IGCP’s website. The debt agency in October 2012 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.
“It was a good operation,” Filipe Silva, who manages the equivalent of $136 million at Banco Carregosa SA in Oporto, northern Portugal, said in an e-mailed note. “To accept the exchange for 2017 and 2018 is, above all, a good sign, for the risk perception of Portuguese debt.”
The country’s bonds were the best performers in November among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, returning 1.9 percent. Greece’s debt lost the most, dropping 1.9 percent.
Portugal’s net financing needs in 2014 will be 11.7 billion euros, Secretary of State for Treasury Isabel Castelo Branco said on Oct. 15. The government plans gross bond issuance of 10.5 billion euros in 2014, when bailout financing from the bailout will be 7.9 billion euros, she said.
The 10-year (GSPT10YR) bond yield fell eight basis points to 5.86 percent today. It dropped to 5.19 percent on May 21, the lowest since August 2010.
“In January or February, we will be paying attention to opportunities to issue debt,” Finance Minister Maria Luis Albuquerque said on Nov. 14. “The idea is to resume regular debt sales in the market.”
The nation’s Social Security Fund plans to increase its holdings of Portuguese debt securities by 2 billion euros this year and 2 billion euros next year, Albuquerque said on Oct. 15. The fund was authorized to increase its holdings of government bonds in July.
Domestic banks in Portugal held a record 34.3 billion euros of the nation’s debt at the end of September, according to European Central Bank data. The combined holdings of the three biggest publicly traded banks rose to 17.2 billion euros in the third quarter, from 16.2 billion euros at the end of June, according to filings by the lenders.
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