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Portugal pays dear to sell debt

Portugal pays dear to sell debt
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Portugal has just managed to sell one billion euros in short-term debt, but the yields – the amount of interest it had to offer investors – rose sharply. That ratcheted up the pressure from local lenders and ratings agencies for Lisbon to seek a bailout.

The sale of six-month and 12-month treasury bills brought temporary relief for the caretaker government in its effort to withstand having to request as the country grapples with soaring rates, political uncertainty and rating downgrades.

But the yield on 12-month T-bills spiked to 5.902 percent from 4.311 percent three weeks ago, and on six-month bills to 5.117 percent from 2.984 percent.

Analysts said borrowing money at those rates can only be a temporary measure and the new government to be elected in June will have to seek international aid.

The finance ministry said the auction was a confirmation of the deterioration caused by the rejection of the austerity plan and promised to take all measures necessary to ensure liquidity and financing for the economy. But it denied talking with the European Union about how to meet borrowing needs.

“Current interest rates make it possible to conclude that the damage caused by the rejection of the austerity plan is irreparable,” a ministry statement said.

The government has previously held out hope that by steadily meeting budget goals and cutting spending it could regain investor confidence.