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Portugal achieves record bond sale ahead of bailout exit

Portugal achieves record bond sale ahead of bailout exit
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Portugal has held its first auction of government bonds in three years and easily sold 750 million euros worth.

The bonds – which are due to mature in 10 years time – were offered at the lowest rate of interest since before the economic crisis which brought the country to the brink of bankruptcy.

Bond trader João Queirós with Banco Carregosa reflected the upbeat mood in the financial markets.

He said: “Because of all the uncertainties there have been, and the progress that we have made over the last three or four years; because of the uncertainties related to growth, and the amount of public debt Portugal has and our capacity to respect our obligations to creditors, we consider this interest rate – 3.57 percent – to be very interesting.”

As recently as February, Portugal paid 5.112 percent in a syndicated 10-year bond sale and in 2012 the yield peaked at over 17 percent.

The bond sale came as Portugal’s international lenders – the so-called troika of the European Union, International Monetary Fund and European Central Bank – conducted their last evaluation of its compliance with the terms of the bailout programme.

The strong demand for the bonds is a major confidence indicator, but Portugal’s Prime Minister Pedro Passos Coelho was cautious when asked if his government would choose to leave the rescue programme without the backstop of a standby European Union loan.

He joked – making a reference to his name which partly means rabbit in Portuguese – that there’s a proverb “You shouldn’t skin a rabbit before you catch it” and he didn’t want to be caught before confirming Portugal had completed all the measures in the bailout programme to the troika’s satisfaction. So he said he would only speak about how they would exit the bailout when the troika had completed its final evaluation.

Wednesday’s auction of government bonds was intended to help raise enough money for Portugal to meet its needs for next year.

Demand was driven by signs the eurozone crisis is abating and Portugal is returning to economic growth after a brutal recession.

Portugal has turned at least a big part of the corner, considering two or three years ago it was deemed practically insolvent,” said Michiel de Bruin, head of global rates at F&C, an asset manager which holds Portuguese bond

The country’s economy contracted by 1.4 percent in 2013. The Bank of Portugal and the government have both predicted GDP will expand by 1.2 percent this year and 1.4 or 1.5 percent in 2015.