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Portugal pays higher rate to raise 1bn euros | |
(about 1 hour later) | |
Portugal has successfully raised about 1bn euros ($1.4bn; £873m) but is paying a much higher interest rate to lenders. | |
The government was forced to tap the financial markets to raise money to re-pay loans falling due next week. | |
But Lisbon is paying yields of 5.1% and 5.9% to borrow money for six and 12 months, against 3% and 4% is was paying to borrow last month. | |
Analysts said paying such high rates are unsustainable for an economy that is seeing virtually no growth. | |
The BBC's business editor, Robert Peston, said the rate is more than Ireland was paying before it received bail-out funds and "implies Portugal will have to go for a rescue after its general election" in June. | |
The markets will also be watching closely to see which institutions subscribed to the bond auction. | |
There has been speculation that some of Portugal's own banks were refusing to take part unless Lisbon applied for a bridging loan from the eurozone's emergency bail-out fund. | |
The government insists it does not need a bail-out. | The government insists it does not need a bail-out. |
The jump in yields was sparked by ratings agency Moody's downgrading Portuguese government debt by one notch, to Baa1 from A3. | The jump in yields was sparked by ratings agency Moody's downgrading Portuguese government debt by one notch, to Baa1 from A3. |
The rating is still investment grade - but only just. | The rating is still investment grade - but only just. |
It is the second downgrade by Moody's in less than a month and follows fellow agency Standard & Poor's cut last week. | It is the second downgrade by Moody's in less than a month and follows fellow agency Standard & Poor's cut last week. |
'Confidence crisis' | 'Confidence crisis' |
Lena Komileva, global head of G10 strategy at Brown Brothers Harriman, told the BBC before the auction details were released that the financial situation in Portugal "has become critical". | |
She said: "The government is not just facing a confidence crisis, it is facing a classic, text-book liquidity crisis in the markets. | She said: "The government is not just facing a confidence crisis, it is facing a classic, text-book liquidity crisis in the markets. |
"The Portuguese banks' attempts to force Lisbon towards seeking some sort of bridge loan [from the bail-out fund] increases the risk of a failed auction [on Wednesday]," she said. | "The Portuguese banks' attempts to force Lisbon towards seeking some sort of bridge loan [from the bail-out fund] increases the risk of a failed auction [on Wednesday]," she said. |
Portugal has to repay more than 4.2bn euros in loans on 15 April, and then another 4.9bn euros in June. | Portugal has to repay more than 4.2bn euros in loans on 15 April, and then another 4.9bn euros in June. |
Moody's said Tuesday's downgrade was "driven primarily by increased political, budgetary and economic uncertainty". | 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. | Last week, the Portuguese government admitted it had missed its budget deficit target for 2010. |
Moody's said the increased uncertainty in the country heightened the risks that "the government will be unable to achieve [its] ambitious deficit reduction targets" in the next three years. | Moody's said the increased uncertainty in the country heightened the risks that "the government will be unable to achieve [its] ambitious deficit reduction targets" in the next three years. |