Portugal back on investor radars

By John Geddie

LONDON, Oct 5 (IFR) - Portugal's first dabble in the capital markets in over a year, coupled with a show of support from the ECB over future bond-buying has sparked renewed investor interest in the credit.

Speaking at a press conference on Thursday, ECB president Mario Draghi celebrated Portugal's EUR3.757bn bond swap from earlier in the week, hinting that the OMT mechanism could be used for bailed out countries if they can successfully return to markets.

Portugal's 10-year paper has rallied 50bp in the wake of the ECB's conference.

"Investors are recognising that as a programme-compliant country that is in the process of re-engaging with markets, the prospect of ECB support at the front-end of their curve is more likely," said JP Morgan economist Malcolm Barr.

The country will now look to capitalise on its heightened stature within the investor community, by continuing on a series of roadshows that included a trip to Germany last week.


The bond swap on Wednesday was its first capital markets endeavour since it signed up to the bailout programme in April 2011, and was seen as crucial to avoiding further aid.

Portugal was facing EUR9.7bn of bond redemptions in 2013 which were not covered by its existing bailout programme

Before the swap was launched, ING's Rates Strategy Spark wrote that if P ortugal failed to access the bond markets by Q2 2013 at the latest a new bailout would be needed, adding that the ESM would be involved and there would be increased probability of private sector involvement.

The Portuguese Treasury and Government Debt Agency (IGCP) subsequently managed to reduce the amount outstanding on the 5.45% Sep 2013 by over one third to EUR5.829bn from EUR9.586bn, increasing the 3.35% Oct 2015 amount to EUR13.406bn from EUR9.649bn

Portugal's bond swap mirrors Ireland's first steps towards market re-entry from the beginning of this year.

In January, Ireland's debt management agency offered holders of its 4% January 2014 note a new bond maturing in February 2015 and paying a coupon of 4.5%.

As a result, Ireland cut EUR3.5bn from a hefty EUR11.9bn of bond redemptions in 2014, and has subsequently reduced this to just EUR2.4bn with an additional bond swap, a new issue auction, T-Bills and most recently amortising bonds.

Ireland has spent the last weeks roadshowing in the US, and jets off to Asia for more investor meetings next week.

(Reporting By John Geddie; Editing by Alex Chambers and Julian Baker)

((John.Geddie@thomsonreuters.com)(+44 20 7542 3486)(Reuters Messaging: john.geddie.thomsonreuters.com@reuters.net))