The European Central Bank was said to purchase government bonds for the first time in two weeks, buying short-dated Portuguese securities after they underperformed euro-area peers.
Portugal’s longer-dated debt slid, with the price of 10-year bonds falling to less than 50 percent of face value for the first time in almost a month. The ECB’s purchases were small, according to two people with knowledge of the transactions, who declined to be identified because the trades are confidential. A spokesman for the ECB declined to comment.
“It is significant that the ECB is back in the market after a pause, I guess they had to do something given the scale of the move today,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “Investors still seem to be slightly wary of Portugal and a lot of that is to do with the fact that there’s still concern it won’t be able to meet its targets and avoid further official assistance.”
Portugal’s two-year note yields were four basis points lower at 12.76 percent at 3:46 p.m. London time after rising as much as 37 basis points to 13.18 percent. The 5.45 percent note maturing in September 2013 advanced 0.1, or 1 euro per 1,000-euro ($1,340) face amount to 90.18.
Ten-year yields surged as much as 89 basis points to 13.91 percent, the biggest intra-day move since Jan. 30. The price dropped to as low as 49.735 cents on the euro.
Benefits of Lending
Portugal’s two- and 10-year yields have held above 10 percent even as securities from other high debt and deficit nations rallied after the ECB offered financial institutions unlimited three-year loans.
“The benefits of the ECB lending seem to be largely being channeled into Italy and Spain, which are better-perceived credits,” Wand said.
The Frankfurt-based central bank agreed to lend 800 financial institutions 529.5 billion euros through a second, three-year longer-term refinancing operation today. That was more than the 470 billion-euro median of 28 estimates in a Bloomberg survey and the 489 billion euros taken up in a December operation.
The ECB said two days ago it hasn’t bought any government bonds for two straight weeks, the first pause in its debt-purchase program since August. The purchases have dwindled since the central bank funneled cash into the banking sector via its three-year longer-term refinancing operation.
Program ‘on Hold’
“This program is more or less on hold,” ECB Governing Council member Ewald Nowotny said on Feb. 27 in London. There is a “clear policy line” of keeping it “in reserve” while “there is not an intention of using it,” he said.
Portuguese Prime Minister Pedro Passos Coelho said yesterday he has no indication that the government will need new measures to meet targets in its financial aid program. International auditors said separately that more efforts are needed in some areas.
“Portugal will likely need to negotiate a new bailout package later this year, as they will not be able to tap the financial market at the current level of yields,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “The ECB will need to buy a huge amount of bonds to have a meaningful effect.”
Portuguese Finance Minister Vitor Gaspar said yesterday the country’s return to markets in 2013 is a “difficult task.” Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said the terms of Greece’s debt restructuring may make it harder for other indebted euro nations such as Portugal to raise financing.
Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro aid plan. The International Monetary Fund, the European Commission and the ECB said yesterday that the economy “will continue to face headwinds” and that the pace of structural reforms must be “stepped up.”