Portugal heads for short-term borrowing test

Wed Feb 1, 2012 3:58am EST
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By Axel Bugge

LISBON (Reuters) - Portugal seeks to sell 1.5 billion euros in treasury bills on Wednesday, in a test of its ability to raise short-term funds after a recent surge in its long-term bond rates have raised fears it may be forced to follow Greece and seek a new bailout.

The sell-off in Portuguese bonds in the past two weeks has sent yields and the cost of insuring the country's debts to record highs, adding to Lisbon's woes as it grinds through its worst economic crisis in decades and imposes sweeping austerity.

Its bond prices were up slightly in early trade on Wednesday, with the yield on 10-year bonds at 16.49 percent, below record highs of 17.40 percent reached on Monday.

These remain well over twice the level generally considered unsustainable, however.

Any sign that Lisbon can still raise short-term financing in markets would ease immediate concerns that it may need to extend terms or ask for more bailout money than its current 78 billion euro lifeline from the European Union and IMF.

Analysts said they expect the country to be able sell the full amount of 3- and 6-month bills, although yields may rise slightly from the last auction on January 18.

"I think demand will remain strong as the country is issuing short-term debt, which is not very influenced by a rise in long-term yields," said Filipe Silva, debt manager at Banco Carregosa.

"The full amount should be issued and even if the rates rise it won't be a big problem issuing all of it as has been done in the past."   Continued...

<p>People walk near a closed down shop in downtown Lisbon January 26, 2012. REUTERS/Rafael Marchante</p>