Portugal sells bonds for first time since bailout

AP News
Posted: May 07, 2013 9:09 AM

LISBON, Portugal (AP) — Portugal held a sale of its 10-year bonds on Tuesday for the first time since it needed a bailout in 2011, representing a milestone in its efforts to regain investor confidence and prove its contested austerity policies are paying off.

Portugal hadn't sold long-term debt since it needed a 78 billion euro ($102 billion) rescue two years ago. The three major international ratings agencies downgraded Portugal's credit worthiness to junk status as the debt-heavy country fell victim to the eurozone financial crisis that spooked investors.

Growing concerns that Portugal had too much debt and too little growth made markets uneasy about lending it money. That sent the interest rate, or yield, that the country pays on its 10-year bonds above 7 percent — a rate that made selling debt unaffordable and which compelled Portugal to ask for help from the International Monetary Fund and its European partners.

As the 17-nation eurozone tries to reduce its debt load, Portugal has been at the heart of the debate about the merits of the austerity policies demanded by the bailout creditors in return for their loan.

Many Portuguese and international economic experts blame the last two years of pay cuts and tax hikes for the record jobless rate of 17.5 percent. The government forecasts a third straight year of recession in 2013.

But Foreign Minister Paulo Portas told a business meeting in Lisbon the bond sale was evidence the government's economic reforms are working. Yields on Portuguese 10-year bonds have recently fallen to around 5.5 percent. Last year, the yields were in double digits.

Finance Minister Vitor Gaspar said early indications were that the interest rate in the sale would be below 5.7 percent. Market demand was for more than 9 billion euros — three times more than the government targeted — by mid-morning.

"The operation has been a great success," he told Portuguese media during a visit to Brussels. "We have not only completely got the financing we need for this year, we've also started gathering the financing we need in 2014 so as to ensure we can exit the bailout program successfully."

The sale was also good news for the bailout lenders, whose inspectors returned to Lisbon on Tuesday to assess the country's compliance with the three-year recovery program that is supposed to restore Portugal's fiscal health.

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Portugal is keen to show it is more like Ireland — which has stoically abided by its austerity program and also held its first bond sale this year since its financial rescue — than Greece, which needed a second bailout and where street protests have turned violence. European leaders are eager to avoid a repeat of Greece's record and put the three-year crisis behind them.

The coalition government, though, has had a hard time persuading the Portuguese their sacrifices are worthwhile. Prime Minister Pedro Passos Coelho last week announced plans to cut another 4.8 billion euros over the next three years.

Government workers, pensioners and public services will bear the brunt of those unpopular cuts. But Passos Coelho said government spending must be reduced or the rescue funds, which are disbursed in installments, won't be released by the bailout lenders.

The finance ministry was expected to announce the full results of the bond sale later Tuesday.