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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
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,"
"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
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.