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2011-01-13 03:37:56
Portugal has raised 1.249bn euros ( 1.04bn; $1.62bn) in an auction of four and
10-year bonds.
The yield, or the interest rate Portugal must pay to borrow funds, on the
10-year bond was an average 6.719%.
Markets had been watching closely to see how easily - or not - the debt-hit
nation could raise funds.
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.
'Bail-out worry'
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.
"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.
"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."
Continue reading the main story
Start Quote
What it shows is that there are still buyers - many of them foreign - for the
bonds of vulnerable eurozone countries
End Quote Gavin Hewitt
'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.
Continue reading the main story
Start Quote
Our country analysts still forecast that Portugal will be required to receive
funds from the emergency credit facility
End Quote Kevin Dunning Economist Intelligence Unit.
The country's borrowing costs have surged as investors worried over its
financial health.
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.
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.
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 auction
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.
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.
Funding call
European Union leaders also renewed their call on Wednesday for eurozone member
states to put more money into the bail-out fund for countries that run into
financial trouble.
European Commission President Jose Manuel Barroso said the European Financial
Stability Facility needed to be extended from its current 440bn euro ($571bn;
366bn) level.
He said the increase was required to reassure markets that the stability of the
eurozone was "not in question".
However, Germany - the largest contributor to the fund - has so far ruled out
increasing its size.