EU Economy
Portugal sells €1bn worth of bonds at elevated interest rates; Spanish and Irish bond yields fall Wednesday
By Finfacts Team
Apr 6, 2011 - 3:42 PM

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Portugal sells €1bn worth of bonds at elevated interest rates; Spanish and Irish bond yields fall Tuesday

Portugal today sold about €1bn worth of bonds but at elevated interest rates. Meanwhile Spanish and Irish bond yields fell Wednesday.

The debt agency in Lisbon agreed deals at yields of 5.1% and 5.9% to borrow money for six and 12 months, compared with 3% and 4% rates it paid last month.

The markets are also focusing on what institutions bought the bonds as there was speculation early this week that local banks were refusing to buy further sovereign debt and were pushing for a 'bridging loan' from the Eurozone's bailout fund.

The caretaker government insists it does not need a bailout and a general election will be held in early June.

Ratings agency Moody's has downgraded Portuguese government debt by one notch, to Baa1 from A3 - -  just above the investment grade threshold.

Portugal has debt of 4.2bn maturing on 15 April and a further 4.9bn in June.

Moody's said Tuesday's downgrade was "driven primarily by increased political, budgetary and economic uncertainty."

Last week, the Portuguese government admitted it had missed its budget deficit target for 2010.

Moody's said the additional uncertainty in the country heightened the risks that "the government will be unable to achieve ambitious deficit reduction targets" in the next three years.

Meanwhile, Spain got a vote of confidence today when Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF) said Spain has no need of an international financial rescue.

"I don't believe that the Spanish government needs any type of financial aid," he said in an interview with the Spanish newspaper El País (The Country).

"We have not received any request for help from the Spanish government," Strauss-Kahn said.

"I believe that the policies that the Spanish government has implemented, as much on the fiscal side as in the reform of pensions, the labour market or in banking, are the correct policies," he added.

"And what I see is that over the last few months, Spain has been put in the same bag as other countries, such as Greece, when they are clearly not in the same situation," he said.

Last month, Moody's cut Spain's long-term credit rating by a notch to Aa2 and warned it may do so again.

The ratings agency expressed doubt that the government had done all it could do to improve public finances and restructure its banking system.

Moody's has also downgraded the credit ratings of 30 Spanish banks.

On Monday, Spain's Socialist prime minister, José Luis Rodríguez Zapatero, ended months of speculation by announcing last Monday that he will not stand for a third term at a general election expected early next year

Bloomberg reports that the yield on the 10-year Spanish bond fell eight basis points, its biggest decline since March 11, to 5.22%, early afternoon Wednesday in London. Irish 10-year government bond yields fell 37 basis points or 0.37% to 9.32%, the lowest since March 2. The yield on two-year Irish notes dropped 40 basis points to 9.06%.

Portugal Funding Costs Not Sustainable: OECD

"I think the Portuguese program is the right program," the OECD's Deputy Secretary General Pier Carlo Padoan told CNBC on Tuesday, warning however that the high yields the country was currently paying were not sustainable. Policy rate rises would not hurt economic growth, he added.

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