Taking some of the pressure off from looming crisis predictions, Portugal successfully managed to sell bonds on Wednesday in the first such auction of the year 2011.
Wednesday’s success prompted Lisbon to dismiss the need for a bail-out package, similar to Greece and Ireland. Finance Minister Fernando Teixeira dos Santos said: “Faced with this result, there is no need” for any external assistance.
A visibly relieved Mr. Santos added: “The success of today’s issue shows that Portugal has the necessary conditions to finance itself in the market at prices that are not only acceptable, but, in the current climate, favourable”.
However, investors are still cautious since latest data indicates that the economy may be shrinking.
In the most closely watched auction of the year, Lisbon managed to raise €1.25 billion in 4 and 10 years maturity bonds. Amid strong demands, the issue was fully subscribed.
10 year maturity bonds were issued at a yield of 6.71 percent, below the psychologically critical 7 percent which the Portuguese government accepted as unsustainable. The intervention by the European Central Bank had boosted investor’s confidence, analyst’s pointed out.
“The point is that despite the yield on the latest auction today being 6.71 per cent compared to the 6.80 per cent paid at previous auction last November markets have already decided that Portugal requires help and that is an end of it”, said Howard Wheeldon, Senior Strategist at BGC Partners.
“Even though the government managed to get the latest bond auction away does not mean that this problem is in any way solved”, he added.
“There was good bidding in this auction. The focus now switches to the Italian and Spanish auctions on Thursday”, said Ciaran O’Hagan – Strategist at Société Generale.
Spain is set to auction €3 billion bonds of five year tenure while Italy will seek to raise €6 billion in two separate maturities due in 2015 and 2026, respectively on Thursday.