Portugal Debt Agency Will Seek to Boost Volume Before Bond Sales
Portugal’s government debt agency aims to increase the volume of trading in its bonds before resuming sales of longer-maturity debt.
Total bond trading declined to an average 12 million euros ($15.5 million) a day last month, from 38 million euros a year earlier and 204 million euros in September 2010, according to the debt agency. While Portugal has continued selling bills, it hasn’t auctioned bonds since requesting a bailout in April 2011.
“The next step that we should focus on is to regain liquidity in our markets,” Joao Moreira Rato, chairman of the debt agency IGCP, said in a Bloomberg Television interview with Guy Johnson. “We shouldn’t rush into doing a transaction before liquidity conditions in our markets are getting better. We need to get the market ready to absorb bigger volumes. We will only move when we are ready and we don’t have to rush.”
Portugal aims to regain access to bond markets by September 2013 and Prime Minister Pedro Passos Coelho has said if the country can’t do that for “external reasons,” it would be able to count on continued support from the European Union and the International Monetary Fund.
The debt agency on Oct. 3 exchanged 3.76 billion euros of securities due in September 2013 for the same value of notes maturing in October 2015, reducing its repayment burden for next year.
“We will continue to do exchanges if we can,” Moreira Rato said in the interview from New York.
Portugal has to fund the repayment of the September 2013 securities without relying on the EU-led rescue program, which extends until the middle of 2014.
Moreira Rato said this month the debt agency is also looking out for opportunities to sell bonds directly to investors. The IGCP is planning to auction as much as 5.75 billion euros of bills with maturities of as much as 18 months in auctions during the fourth quarter.
Portuguese bond yields have dropped this year as the government raises taxes to comply with the terms of the 78 billion-euro aid plan from the EU and the IMF. Borrowing costs fell to the lowest since 2010 when the nation sold 1.29 billion euros of 18-month bills on Sept. 19. The extra yield investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 6.58 percentage points from a record 16.48 percentage points on Jan. 31.
Standard & Poor’s cut Portugal’s credit rating to non- investment grade, or junk, in January, following Fitch Ratings and Moody’s Investors Service.
The IMF, the European Commission and the European Central Bank said in a joint statement on Sept. 11 that Portugal’s debt will peak below 124 percent of gross domestic product and “remains sustainable and will be on a firm downward trajectory after 2014.”
Portugal is aiming to reduce its deficit to 5 percent of GDP in 2012 instead of the previous goal of 4.5 percent, Finance Minister Vitor Gaspar said on Sept. 11 after EU and IMF officials agreed on the new targets.
The government projects GDP will shrink 1 percent in 2013 after contracting 3 percent this year. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.
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