UPDATE 1-Portugal swaps bonds to ease post-bailout redemptions

Tuesday, 3 Dec 2013 | 7:54 AM ET

(Updates with comments, details)

LISBON, Dec 3 (Reuters) - Portugal swapped 6.6 billion euros of bonds maturing in the next two years for longer-dated paper on Tuesday, reducing short-term debt repayment costs to help smooth its planned exit from a bailout next year.

The operation should make it easier for Portugal to issue new bonds early in 2014, bringing the country closer to its goal of returning to market financing as it leaves behind the 78 billion euro IMF/EU rescue package it took three years ago.

Lisbon hopes to take charge of its own finances from mid-2014 although the government has not ruled out requesting a precautionary loan from creditors after the bailout expires.

Portuguese bond yields fell sharply after Tuesday's swap.

"I am massively, positively surprised," said David Schnautz, debt strategist at Commerzbank in New York, referring to the size of the swap. "It's a big success in terms of tackling upcoming redemptions, and wins time to let reforms play out."

The IGCP debt agency said it had bought back 837 million euros of 4.375 percent coupon bonds maturing in June 2014, 1.639 billion euros of 3.6 percent bonds falling due in October 2014 and 4.164 billion euros of 3.35 percent bonds due October 2015.

Those were replaced with 2.676 billion euros of 4.35 percent bonds due October 2017 and 3.966 billion euros of 4.45 percent bonds due June 2018. It was Lisbon's second bond swap since the bailout agreed in May 2011.

Portugal's treasury secretary told Reuters on Monday the country intends to issue new bonds early in 2014 and that a debt exchange would be a logical first step in that direction. She said investors were increasingly interested in Portuguese debt.

Lisbon sold its first 10-year benchmark bond since before the bailout in May this year.

The Portuguese economy returned to modest growth in the second quarter after three years in recession, which the government hopes will put the country on track to overcome its worst economic crisis since the 1970s.

(Reporting by Axel Bugge and Andrei Khalip; Additional reporting by Daniel Alvarenga; Editing by Catherine Evans)