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Portugal’s Borrowing Costs Rise, Demand Falls at Bill Auction

Portugal’s borrowing costs rose and demand fell at a sale of 1.03 billion euros ($1.5 billion) of three- and 12-month bills amid mounting concern that investors may need to share the burden of losses from future debt crises.

The government sold 500 million euros of securities due in February to yield 1.818 percent, the debt office said today in a statement. That compares with a yield of 1.595 percent at the previous auction on Oct. 6. Investors bid for 2.2 times the debt offered, down from 3 times last month. The yield rose and the bid-to-cover ratio declined on the 12-month bill sale.

“It wasn’t marvelous,” said Huw Worthington, a fixed-income strategist at Barclays Capital in London. “Confidence in peripheral countries is not high.”

Yields on European peripheral nations’ debt are climbing as politicians step up pressure on bondholders to help pay for losses arising from any restructuring. German Finance Minister Wolfgang Schaeuble said the euro’s stability depends on making investors responsible, underscoring Chancellor Angela Merkel’s push to shield the nation’s taxpayers from the risk of bailing out other euro-region members.

Irish 10-year bonds fell, driving the extra yield, or spread, that investors demand to hold the securities instead of German bunds to a record for the third consecutive day. The spread increased to 499 basis points, according to Bloomberg generic data. That’s the most since Bloomberg began collecting the data in 1991.

Spread Widens

The Portuguese-German 10-year yield spread increased seven basis points to 384 basis points, the highest since Oct. 13, based on closing yields.

The 531 million euros of bills due in October 2011 were issued at an average yield of 3.260 percent. That compares with a yield of 2.886 percent at the previous sale on Oct. 20. The bid-to-cover ratio was 2.2 times, down from 2.4.

“Both bills were sold at a yield slightly higher than the market ahead of the auctions,” Chiara Cremonesi, a strategist at UniCredit SpA in London, wrote in a note. “In the last few days, periphery has been under strong pressure, with Ireland, Portugal and Greece being the hardest hit.

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