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Portugal bond auction to raise up to 1.25bn euros Portugal bond auction raises 1.25bn euros
(about 4 hours later)
Portugal will go to the markets for up to 1.25bn euros (£1.04bn; $1.62bn) with a sale of four and 10-year bonds. Portugal has raised 1.249bn euros (£1.04bn; $1.62bn) in an auction of four and 10-year bonds.
The auction will be closely watched as an indication of investor confidence, as markets see how easily - or not - the debt-hit nation can raise funds. The yield, or the interest rate Portugal must pay to borrow funds, on the 10-year bond was an average 6.719%.
Yields, or the interest rate Portugal must pay to borrow funds, hit a recent fresh high on its 10-year bonds of 7.3%, before falling to 6.9%. Markets had been watching closely to see how easily - or not - the debt-hit nation could raise funds.
The country is now likely to offer very high yields to sell its debt. Yields had hit a recent fresh high on its 10-year bonds of 7.3%, before falling to 6.77% on Wednesday morning before the auction.
However, bond buying by the European Central Bank (ECB) should stop yields rising so much that Portugal is forced to seek an EU bail-out. 'Bail-out worry'
Portugal is to offer a total of between 750m euros ($972.1m) and 1.25bn euros in four- and 10-year bonds. The sale was seen as a measure of Lisbon's ability to raise funds on the financial markets after its debt and deficit problems raised the amount it had to pay to borrow cash.
"The market will take it down primarily because of what the ECB is doing," said Peter Chatwell, rate strategist at Credit Agricole in London. "But even with this auction, most now consider it a question of when, not if, Lisbon will join the list of eurozone governments turning to Europe and the IMF for emergency support," said BBC economics editor Stephanie Flanders.
"The ECB appears to be proactive enough and we've seen tightening in Portuguese yields so far this week." "European policy makers - and investors - worry about a Portuguese bail-out, not because of any inherent concern for that country, but for what it symbolises - and for what might happen next."
'Domestic demand' 'ECB active'
Bond buying by the European Central Bank (ECB) had helped keep the yield below 7%.
"Probably the most important thing for the 10-year yield is that the 7% level was not breached," said Michael Leister, of West LB in Duesseldorf.
"The ECB have been very active in past days stabilising the market and sentiment.
"It remains to be seen over the coming trading session whether this will be a turnabout for Portugal and whether recent spread tightening can be sustained."
The four-year bond yield was 5.396%.
Bail-out?
There has been speculation Portugal could join Greece and the Irish Republic in needing an international bail-out, something it has denied.There has been speculation Portugal could join Greece and the Irish Republic in needing an international bail-out, something it has denied.
The country's borrowing costs have surged as investors worried over its financial health.The country's borrowing costs have surged as investors worried over its financial health.
However, analysts are not worried about demand at the auction, particularly after the ECB buying. Lisbon has argued its situation is different from Greece and the Irish Republic - both of which have agreed to bail-outs from the European Union and International Monetary Fund.
"I expect the auction to be already sold, with domestic demand enough to cover supply, but it doesn't mean that concerns will go away," said BNP Paribas analyst Ioannis Sokos.
Lisbon has argued its situation is different from Greece and the Republic of Ireland - both of which have agreed to bail-outs from the European Union and International Monetary Fund.
It says that its deficit and debt are lower than those nations, that it has not suffered a bubble in property prices and that its banks are sound.It says that its deficit and debt are lower than those nations, that it has not suffered a bubble in property prices and that its banks are sound.
And the European Commission has said there are no discussions under way on an EU-International Monetary Fund bail-out of Portugal.And the European Commission has said there are no discussions under way on an EU-International Monetary Fund bail-out of Portugal.
However, some analysts still believe the country will need to seek funding help.
"Our country analysts still forecast that Portugal will be required to receive funds from the emergency credit facility," said Kevin Dunning, economist at the Economist Intelligence Unit.
"And there is a high risk that if the interest charged on those funds is as high as for Ireland, this will slow Portugal's efforts to reduce its budget deficit."
Spanish auctionSpanish auction
Analysts believe that while Europe could support Portugal, a bail-out of Spain would stretch the existing bailout fund. Analysts believe that while Europe could support Portugal, a bail-out of Spain would stretch the existing bail-out fund.
Greece was the first eurozone nation to take a bail-out when a three-year 110bn-euro deal was agreed.Greece was the first eurozone nation to take a bail-out when a three-year 110bn-euro deal was agreed.
The Irish Republic's 85bn-euro bail-out package was agreed last month.The Irish Republic's 85bn-euro bail-out package was agreed last month.
A debt sale due on Thursday by Spain will also be closely watched by investors.A debt sale due on Thursday by Spain will also be closely watched by investors.