Portugal has insisted that it can access debt markets without European Union or International Monetary Fund help, in spite of being forced to pay a high premium in its first test this year of investor sentiment.
?We can overcome our [financing] difficulties by ourselves without support from the outside,? Carlos Costa Pina, secretary of state for the treasury, said on Wednesday.
He was speaking after the government had to pay an average yield of 3.68 per cent on a ?500m issue of six-month Treasury bills, a sharp jump compared with yields of 2.04 per cent for a similar sale in September and 0.59 per cent a year ago.
John Wraith, fixed income strategist of BofA Merrill Lynch Global Research, said: ?The higher yields in the Portuguese auction are ominous. It is a vicious circle for borrowers when interest burdens escalate, as they represent a drag on growth that can in turn force yields higher still on worries over the ultimate affordability of the debt.?
However, Mr Costa Pina said that strong demand for the issue reflected ?investor confidence? in government measures to cut the budget deficit and ?the capacity of the Portuguese economy to resist? recessionary pressures.
He said that demand for the issue had been 2.6 times the amount on offer, compared with about 2.4 times for the previous sale. Another positive, he said, was that similar Portuguese debt had been trading at a higher yield in the secondary market.
The issue was the first in a debt programme that aims to raise about ?20bn this year to finance the government budget and bond redemptions.
Economists said a bigger test of investor appetite for Portuguese debt would be this year?s first auction of long-term government bonds. The IGCP, the public debt agency, has not yet set a date for this issue, but traders expect it to be scheduled for January 12.
Portugal?s first bond redemptions this year are not due until April, with repayments in that month and June estimated at ?9.5bn. Many bankers think Portugal will eventually follow Greece and Ireland and seek financial aid. Portuguese benchmark 10-year bond yields have risen three quarters of a percentage point to 6.65 per cent since the start of December.
Portuguese officials have admitted in the past that yields of more than 7 per cent on 10-year debt are not sustainable. They rose above 7 per cent briefly in late November.
Elsewhere, worries increased over Ireland after the markets focused on moves by the Swiss central bank which, according to its website, has excluded securities issued by Allied Irish Banks, Anglo Irish Bank and Bank of Ireland from the list of assets it accepts as collateral for its repurchase operations.
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