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Portugal make comeback to bond markets

Wednesday, January 23 17:05:31

Portugal's first bond sale since its 2011 rescue drew strong demand today, bolstering hopes the country can make a full market return that should allow it to call on further European Central Bank support.

Lisbon was initially expected to sell around 2 billion euros of the five-year paper, a reopening of its 4.35 percent October 2017 bond, first launched in 2007 as a 10-year benchmark.

But sources close to the deal said the placement was likely to be around 2.5 billion euros after total orders had exceeded 10 billion euros, allowing for a lower cost of borrowing for Lisbon than initially expected.

The finance ministry said it would announce detailed results of the bond issue at a news conference at 1800 GMT.

"The guidance came down thanks to strong demand. The final yield should settle at around 5 percent or slightly below," one source told Reuters.

Portugal last paid 6.4 percent to sell five-year bonds in a placement before its bailout two years ago. Its outstanding 2017 debt was yielding 4.93 percent in the secondary market on Wednesday, the lowest level since late 2010.

The sale should move closer to getting more support from the European Central Bank if needed.

The ECB's programme of bond purchases, known as Outright Monetary Transactions (OMT), is only available to countries that have normal access for long-term bonds and have asked European authorities for help.

The ECB has yet to buy any bonds under the scheme, which was announced in September, although its pledge to support struggling euro zone states has helped drive yields on their debt sharply lower.

"They need the OMT qualification to lower borrowing costs further. They'll still need to issue more debt like this before they get full market access, but then they should fit into the ECB criteria as they are still under bailout," said Orlando Green, a debt strategist at Credit Agricole in London. (C ) Reuters