Portugal borrowing costs fall after ECB action

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Portugal’s borrowing costs declined at a successful auction of €1.5bn of shorter-term government debt, after the European Central Bank intervened in the country’s sovereign debt market earlier this week to subdue soaring bond yields.

The six-month notes due in July 2012 were issued at an average yield of 4.463 per cent, according to Portugal’s IGCP debt management agency, compared with an average yield of 4.74 per cent at a previous auction on January 18.

The Portuguese debt agency also sold €750m of three-month bills due in May at an average yield of 4.068 per cent, down from an average yield of 4.346 per cent at a previous auction on January 18.

Concerns that the sharp lurch in Portugal’s borrowing costs could lead to contagion spurred the ECB’s intervention. Its action has helped send bond yields, which move inversely to prices, tumbling over the past two days. Portuguese 10-year bond yields fell as much as 161 basis points on Tuesday, the biggest daily fall this year, as the ECB bought debt for the second day in a row.

The 10-year benchmark bond yield fell 80bp to 14.1 per cent on Wednesday, down from a peak of 16.7 per cent earlier this week.

Responding to investor concerns that the country would need to follow Greece in seeking a second bail-out or restructure its debts, Pedro Passos Coelho, the prime minister, said Portugal would fulfil its rescue programme “come what may”.

“Many people seem to think Portugal is going to fail,” he said on Tuesday night. “But we will fulfil the programme we have agreed to, however painful that may be.”

He said Bank of Portugal data suggest a positive trade balance in 2013. Portugal was also cutting public deficits at a significant rate. “There is no reason for any lack of confidence,” he said.

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