Portuguese Bond Yields Fall in Solid Auction

Portugal sold all 1.5 billion euros ($1.97 billion) on offer in a treasury bill auction on Wednesday with yields falling on both maturities, successfully passing the test of its ability to raise short-term funds after a surge in its long-term bond rates.

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Many investors fear the debt-laden country that is mired in a recession while applying tough austerity measures to slash its budget gap may follow Greece in seeking a new bailout.

The average yield on 3-month bills fell sharply to 4.068 percent from 4.346 percent in the last auction two weeks ago, while 6-month bills yielded 4.463 percent, down from 4.740 percent, the IGCP debt agency said.

Demand outstripped the amount offered by 2.8 times on the 3-month bills and 2.6 times on 6-month bills.

The IGCP had set the indicative offer at the auction at between 1.25 billion euros and 1.5 billion euros total in the two T-bill maturities.

Growing Concerns

Concerns over Portugal have grown ever since Standard & Poor's downgraded its debt to 'junk' status earlier this month, putting it in the same category as only Greece in the euro zone.

That and the uncertainty surrounding Athens' efforts to restructure its debt has fuelled growing worries over Portugal, with some economists saying it could eventually have to restructure its debts as well. 

But the government insists that it has no intention of extending or asking for a new bailout to top up the existing one, sticking to its strategy of meeting strict budget goals and reforming its economy to boost confidence.

Prime Minister Pedro Passos Coelho said late on Tuesday the country would meet the demands of its current bailout "whatever the cost."

The austerity demanded by the bailout, including salary cuts for civil servants and across-the-board tax hikes, has already sent Portugal into its worst recession since the 1970s and left unemployment at its highest level in decades.