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Portugal’s Borrowing Costs Drop to Lowest Since 2010 at Sale

Portugal’s cost of borrowing dropped to the lowest since 2010 as it sold 1.29 billion euros ($1.68 billion) of 18-month bills, the longest maturity it has auctioned since April.

The 546-day securities were issued at an average yield of 2.967 percent, the debt management agency said. That’s the lowest at an auction of debt maturing in more than a year since the nation sold two-year notes in April 2010 at 1.715 percent. The previous 18-month auction on April 4 drew a yield of 4.537 percent. Today’s sale attracted bids for 2.4 times the amount allotted, compared with 2.6 times at the prior auction.

“The bill sale was successful and demonstrates that for now any eventual increase in Portugal’s political risk has not affected investors, who continue to have a lot of interest in buying short-term Portuguese government debt,” Filipe Silva, who manages the equivalent of $78 million at Banco Carregosa SA in Oporto, northern Portugal, wrote today in an e-mailed note.

Portugal’s two-year yield was little changed at 5.08 percent at 3:21 p.m. in London, and 10-year yields were at 8.65 percent. The extra yield investors demand to hold Portuguese 10-year bonds instead of similar-maturity German bunds has narrowed to 7.05 percentage points from a euro-era high of 16.48 percentage points set on Jan. 31.

Lower Yields

Portuguese yields have dropped as the government cuts spending and raises taxes to comply with the terms of a 78 billion-euro aid plan requested from the European Union and the International Monetary Fund. Prime Minister Pedro Passos Coelho said on March 5 that if the country can’t tap bond markets by September 2013 because of “external reasons,” it would be able to count on further support from the IMF and EU.

The debt agency also sold 709 million euros of six-month bills at an average yield of 1.7 percent, attracting bids for 3.1 times the amount offered. That compares with a yield of 2.292 percent at a previous auction on July 18. The 1.7 percent yield is the lowest at a sale of six-month securities since March 3, 2010, when the yield was 0.739 percent.

The IGCP, as the debt agency is known, said on Sept. 13 that the total indicative amount for today’s auctions would be between 1.5 billion euros and 1.75 billion euros, less than the 2 billion euros eventually raised. No further auctions are scheduled for this quarter.

The Portuguese government aims to regain full access to bond markets by September 2013.

ECB President Mario Draghi said on Sept. 6 that bond purchases may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they regain debt-market access.

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