Portugal saw its borrowing costs for one-year funds decline at a debt auction on Wednesday, below than of Spain, indicating that investor confidence for the bailed-out nation has improved.
The country raised a total EUR 2 billion from the sale of its 12- and 6-month treasury bills against a target of EUR 1.75 billion - EUR 2 billion, data from the debt management agency IGCP showed.
The agency placed EUR 1.25 billion of debt due July 2013 to yield 3.505 percent, which was less than 3.834 percent paid in the previous sale on June 6. The bid-to-cover ratio, which mirrors demand, fell to 2.4 from 2.7.
Yesterday, Spain also saw lower cost of borrowing for securities with similar maturity, but the yield remained high. The country sold its 12-month treasury bill at 3.918 percent yield.
Thus far, Spain has only sought aid to prop up its ailing banking system. The country's borrowing costs had surged earlier this month on worries that it may be forced to seek a bailout for its entire economy.
However, the lower yields from Tuesday indicate that investor concern has eased after Prime Minister Mariano Rajoy unveiled a EUR 65 billion austerity package on July 11, just days after EU postponed Spain's deadline to meet the target by an year.
Portugal also sold EUR 750 million of January 2013 paper to yield 2.292 percent, down from 2.653 percent paid on June 6. Demand was 3.8 times the offer compared to 4.3 times last month.
The International Monetary Fund yesterday said Portugal has made progress in fiscal consolidation despite the difficult situation in the euro area. The country's recession this year is expected to be a bit milder than originally envisaged, the lender added, forecasting a 3 percent contraction.
A gradual recovery of market access for the country is conceivable, the IMF said in its review. The Portuguese authorities are planning to increasing issuance of longer-dated Treasury Bills and restarting the program of issuance of Medium-Term Notes with one to five year tenors tailored to specific creditors, the lender noted.
After completing its fourth review of the Portuguese economy under an extended fund facility (EFF) arrangement with the government, the IMF approved the disbursement of EUR 1.48 billion on Monday.
With the release of fresh funds the total disbursements under the EFF arrangement will reach around EUR 21.13 billion. The country had secured a EUR 78 billion bailout from EU and IMF.
by RTT Staff Writer
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