Last updated: January 23, 2013 6:21 pm

Portugal returns to long-term debt market

Portugal has returned to the long-term debt market for the first time since being bailed out in 2011 in a landmark deal for the rehabilitation of the eurozone’s struggling peripheral economies.

Bankers said demand for Portugal’s “syndicated tap”, increasing the size of an existing €6bn bond maturing in 2017, was in excess of €12bn.

The stronger than expected demand came mainly from overseas investors, according to people familiar with the deal, and led the government to increase the offer size by a quarter to €2.5bn and lower the cost of borrowing to less than 5 per cent.

Álvaro Santos Pereira, economy minister, said the bond sale was an “important step” towards re-establishing Portugal’s international credibility and a full return to debt markets.

“By focusing on fiscal consolidation, important economic reforms and a social pact, we have shown that Portugal is at a clear distance from other [eurozone] countries facing difficulties,” he said.

Jorge Moreira da Silva, vice-president of the centre-right Social Democrats, the senior government coalition partner, said the deal marked a “turning point” in Portugal’s attempts to wean itself off eurozone support and return to the government bond market.

Lisbon’s bond deal follows a successful Spanish bond sale on Tuesday and comes as EU officials moved to ease the return of Portugal and Ireland to the long-term government debt market.

Portugal’s 10-year bond yield on Wednesday fell to the lowest level since September 2010.

“It is a sign of how markets are re-opening up that not just Spain and Italy have been able to get bonds away,” said Andrew Milligan, head of global strategy at Standard Life Investments.

Olli Rehn, the EU’s monetary affairs commissioner, said on Tuesday that Portugal and Ireland could draw on a European Central Bank bond-buying programme to help them regain market access. Under its €78bn bailout agreement, Lisbon is scheduled to resume issuing long-term government debt by September, ahead of a €5.8bn bond repayment that falls due in the same month.

Mr Moreira da Silva said the government’s confidence that it would comply with its budget deficit target for 2012 was among several factors that had made this “the right moment” to take a step towards regaining full market access.

However, Eurostat, the EU’s statistical office, Wednesday published less welcome news for the Portuguese government.

It reported that the country’s public debt had risen to 120.3 per cent of national output in September, up 2.9 per cent from three months earlier and the third-highest debt-to-output ratio in the EU.

“Most European countries are turning, but they are turning slowly,” Mr Milligan cautioned. “I don’t think we should get ahead of ourselves on the difficulties facing the eurozone.”

The Portuguese bond sale was managed by Barclays, Banco Espírito Santo, Deutsche Bank and Morgan Stanley.

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