Portugal's Borrowing Costs Rise at Auction of 2016 and 2020 Bonds Today
Portugal’s borrowing costs rose as it sold 1.3 billion euros ($1.65 billion) in bonds the day after Ireland, another high-deficit nation, was downgraded by Standard & Poor’s.
Investors demanded higher yields for six- and 10-year bonds than in the previous auctions of bonds with the same maturities. Portugal exceeded its target for the size of the sale, and the ratio of bids to bonds offered was little changed from the previous auctions.
“It may be that the issuer was keen to get something in place rather than worrying about the levels” of the yields, Huw Worthington, a fixed-income strategist at Barclays Capital in London, said by phone.
The extra yields investors demanded to buy Portugal’s benchmark 10-year bonds on the secondary market had already risen in the past week. The spreads over German yields rose 47 basis points, or 0.47 percentage point, in the past five days, including an 11-point increase today as of 3:03 p.m. in Lisbon.
Spreads of Portuguese, Greek and Irish debt all widened today after S&P downgraded Ireland’s debt by one level to AA-. S&P cut its rating on Portuguese debt two levels to A- in April, keeping a negative outlook, meaning another cut is under study.
“You tend to get several rating actions around the same time,” so investors may be anticipating downgrades affecting other countries, Worthington said.
Portugal’s government aims to reduce its budget deficit to 7.3 percent of gross domestic product this year from last year’s 9.4 percent. Ireland had a deficit of 14.3 percent last year, the highest among countries using the euro.
Portugal today sold 629 million euros of bonds due in October 2016 and 672 million euros of bonds maturing in June 2020.
The securities due in 2016 were issued at an average yield of 4.371 percent, the country’s debt management agency said. That compares with an average yield of 3.834 percent at a previous auction of six-year debt on Feb. 11, 2009. Today’s auction attracted bids for 2.1 times the amount offered, compared with a bid-to-cover ratio of 2.02 in February 2009.
The bonds due in 2020 were issued at an average yield of 5.312 percent. That compares with an average yield of 5.225 percent at a previous auction of debt with the same maturity on June 9. Today’s auction attracted bids for 1.8 times the amount offered, compared with the same bid-to-cover ratio in the June sale.
The IGCP, as the debt agency is known, said on Aug. 19 the combined total indicative amount for today’s auction would range from 750 million euros to 1.25 billion euros.