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Portugal on Irish path to bailout exit

Tuesday, February 11 14:04:19

Portugal launched its second sovereign bond sale of the year today, drawing strong demand as it looks to build up a financial buffer before exiting its international bailout in May.

Portugal aimed to place 3 billion euros in a tap of its Feb. 2024 bond, with total demand in the syndicated sale exceeding 8 billion euros, Thomson Reuters news and information service IFR said.

Traders said pricing guidance was tightened to 320 basis points over mid-swaps from an initial 325 bps. The deal prices later on Tuesday.

"Portugal is showing that it can return to markets in a more regular fashion and it has appetite for its public debt," said Filipe Silva, debt manager at Banco Carregosa in Porto.

Assuming the tap goes as planned, Lisbon will have covered half of the upper range of its 2014 bond issuance target of between 11 billion and 13 billion euros, following last month's tap of a five-year bond worth 3.25 billion euros.

That would leave it well placed to exit its bailout as scheduled in May, though the jury is out on whether it can match Ireland by making a clean break from its rescue programme.

"I believe the issue is going to be well-placed, above par and with the yield around 5 percent or even slightly below," Silva said.

That would be an improvement on the May 2013 10-year bond tap - the first since the bailout started - where the yield was 5.65 percent.

In the secondary market, the 10-year yield was little changed at around 5.01 percent on Tuesday after news of fresh supply lifted it from last week's mark just below 5 percent - around its lowest levels since 2010.

"It's a tremendously good sign how stable and robust the secondary market is given that there's an extra 3 billion in that bond coming," said David Schnautz, rate strategist at Commerzbank in New York.

Last month, state debt agency IGCP said that following a successful bond swap at the end of last year and the five-year tap in January, further market financing would help pre-finance 2015 borrowing needs.

Also, the agency had a comfortable cash position of around 13 billion euros at the end of last year, with gross financing needs for this year estimated at 7 billion to 8 billion euros.

"The 2014 needs are almost covered... They (Portugal) are now focussed on amassing a cash buffer for 2015," said Paula Carvalho, an economist at Banco BPI.

Added Schnautz: "They are on a very good path ... especially considering the plan to revive bond auctions in the first half of this year."

European officials and many economists believe that, unlike Ireland - which in December became the first euro zone country exit an international bailout - Portugal would benefit from a precautionary loan scheme after its programme ends.

Credit agency Fitch said last week that such a funding lifeline would support Portugal's ratings. (Reuters)