Portugal Auctions 12-Month Bills at Lowest Rate Since 2010

Portugal’s borrowing costs fell as the government sold a combined 2.5 billion euros ($3.32 billion) of three-, 12- and 18-month bills in its first auction of 2013.

The debt agency said it sold 1.2 billion euros of 12-month securities at an average yield of 1.609 percent, the lowest since April 2010, and down from 2.10 percent at the previous auction on Oct. 17. Investors bought 1 billion euros of 18-month bills at an average yield of 1.963 percent, the least since it started selling the debt in April.

The 300 million euros of three-month securities were auctioned at 0.667 percent, versus 1.936 percent on Nov. 21.

The benchmark two-year yield fell 13 basis points, or 0.13 percentage point, to 3.54 percent at 1:38 p.m. in London after dropping to 3.09 percent on Dec. 17, the lowest level since November 2010.

The 10-year yield climbed seven basis points to 6.39 percent. The extra yield investors demand to hold Portugal’s 10-year securities instead of similar-maturity German bunds has narrowed to 4.84 percentage points from a euro-area record of 16 percentage points in January 2012.

Higher Taxes

Yields have dropped at auctions and in the secondary market as Portugal raises taxes to comply with the terms of a 78 billion-euro aid plan requested by the European Union and the International Monetary Fund in 2011. The country aims to regain access to bond markets by September and Prime Minister Pedro Passos Coelho has said if the nation can’t do that for “external reasons,” it would be able to count on continued support from the IMF and the EU.

The debt agency said on Jan. 11 net borrowing needs will be about 11.5 billion euros this year, with financing from issuing treasury bills of about 5 billion euros. Portugal sold 22 billion euros of bills in 2012, though it hasn’t auctioned bonds since requesting a bailout in April 2011.

The country has to meet a 5.8 billion-euro redemption of bonds maturing in September without relying on the EU-led rescue program, which extends until the middle of 2014. 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 this year.

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