By Caroline Hyde and Esteban Duarte Feb. 10 (Bloomberg) — Portugal is offering higher yields than investors demand to hold its existing debt to sell 3 billion euros ($4.1 billion) of bonds. The south European nation, which is struggling to cut its budget deficit, is pricing the 10-year securities to yield 140 basis points over the benchmark mid-swap rate. That’s more than 20 basis points, or 0.2 percentage point, wider than where the government’s benchmark 2019 bonds are trading, according to data compiled by Bloomberg. Portugal has pledged to reduce its budget gap of 9.3 percent of gross domestic product by more than half in three years. Today’s bond sale may be helped by speculation the European Union is close to agreeing a bailout for Greece, whose debt crisis roiled credit markets for weeks and sent the cost of insuring against government defaults soaring. “Portugal wants to be sure the deal works,” said Simon Ballard , a credit strategist at Royal Bank of Canada in London. “They’re pitching it so that it sells, given that we’re in uncharted waters with all that’s been happening on Europe’s periphery.” The sale attracted 13 billion euros of orders, according to a banker involved in the transaction who declined to be identified. Barclays Capital, Banco Espirito Santo SA, Credit Agricole CIB, Goldman Sachs Group Inc. and Societe Generale SA are managing the issue, the banker said. Benchmark Issue The 140 basis point-spread compares with the 135 basis points Portugal paid when it priced its 4 billion-euro issue of 10-year benchmark bonds in February 2009, according to data compiled by Bloomberg. Those notes are now trading at a spread of 117 basis points, the data show. Alberto Soares, chairman of Portugal’s government debt agency in Lisbon, said the pricing of the new bonds was “excellent” compared with the initial spread of last year’s benchmark issue, and that today’s deal was “a success.” Market conditions “are different at every given moment,” he said. Standard & Poor’s lowered the outlook on Portugal’s A+ rating to negative in December and Moody’s Investors Service also has a negative outlook on its Aa2 rating. Fitch Ratings reduced the outlook on its AA grade to negative in September. The nation’s public debt will rise to 91 percent of economic output by 2011, from 77 percent last year, according to European Commission forecasts. Portuguese Prime Minister Jose Socrates said today the government’s plan to cut the budget deficit to 8.3 percent of economic output this year is an “important effort.” Premium ‘Is Right’ “It’s right for the market to price in significant risk premiums for Portuguese bonds,” said Steven Mansell , an interest-rate strategist at Citigroup Inc. in London. “You may argue that Portugal is not Greece, but there’s a clear risk of contagion. It has low growth potential and a high budget deficit which will require a similar type of fiscal adjustments.” Credit-default swaps used to hedge against losses on Portugal’s debt tumbled today as German Finance Minister Wolfgang Schaeuble briefed lawmakers on steps he may take to aid Greece. The contracts dropped 5 basis points to 199.5, while default swaps on Greece fell 23 to 357, down from a record 428 basis points reached on Feb. 4, according to CMA DataVision prices. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company or country fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Greek Bailout German Finance Minister Wolfgang Schaeuble told lawmakers that options for helping Greece extended beyond loan guarantees, according to an official who attended a briefing today at the parliament in Berlin. Germany is examining means of helping Greece regain market confidence as Chancellor Angela Merkel prepares for a summit of European Union leaders tomorrow. “Given the improvement in market sentiment focused on Greece, investors are inclined to demand less of a premium” for today’s Portugal bond sale, said Wilson Chin , a fixed-income strategist at ING Groep NV in Amsterdam. “If any country had issued two days ago they would have likely had to offer more in terms of a premium.” Portugal has already reduced the interest rate on the new bonds from the initial guidance as expectations of a European rescue package for Greece mounted, said a banker involved in the transaction. The country earlier offered to pay about 145 basis points to 150 basis points over midswaps. The spread on Portugal’s new bonds should narrow further relative to benchmarks as the notes trade in the secondary market, according to Harvinder Sian , a senior bond strategist in London at Royal Bank of Scotland Group Plc. “It should tighten from here on the back of EU solidarity comments at the summit on Thursday,” said London-based Sian. “Portugal is also promising to cut the deficit faster and signs of austerity should aid confidence.” To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net ; Esteban Duarte in Madrid at eduarterubia@bloomberg.net
The rest is here:
Portugal Offers Investors Premium to Sell 3 Billion Euros of 10-Year Bonds
