Lisbon: Portugal sold €1 billion (Dh5.27 billion) of bills with the clock ticking on Prime Minister Jose Socrates's lame-duck government and a financial rescue that analysts say is all but inevitable.
Borrowing costs increased at the sale of six- and 12-month bills, the second debt offering in five days, and came a day after Moody's Investors Service cut Portugal's credit rating for the second time in three weeks. The country paid more to borrow for six months than it costs Germany for 30-year bonds.
"It's a done deal" that Portugal will seek a bailout, David Bloom, the global head of currency strategy at HSBC Holdings in London, said in an interview yesterday with Mark Barton on Bloomberg Television's On The Move. "The ‘when' is a good question. The government isn't really in place to ask for it."
Portuguese bond yields have climbed to record levels since Socrates quit March 23 following a parliamentary rejection of proposed deficit cuts. He said the plan would prevent Portugal from following Greece and Ireland in seeking emergency funds from the European Union and International Monetary Fund. The country has bond redemptions on April 15 and June 15, totalling €9 billion. President Anibal Cavaco Silva has set elections for June 5.
Adding to the headwinds is a looming interest-rate increase by the European Central Bank as soon as tomorrow as policymakers seek to stamp out accelerating inflation at the risk of hammering debt-laden economies such as Portugal.
Bid to cover
The securities due March 2012 were sold yesterday at an average yield of 5.902 per cent, the country's debt agency said. The auction attracted bids for 2.6 times the amount offered. Portugal also sold bills due October 2011 at an average yield of 5.117 per cent, attracting bids for 2.3 times the amount offered.
Portugal last auctioned 12-month bills on March 16, raising €1 billion at an average yield of 4.331 per cent.
