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Bailed-out Portugal gets $2.65 bln in debt auction

March 21, 2012
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LISBON, Portugal—Portugal managed to borrow almost (EURO)2 billion ($2.65 billion) at sharply lower prices in a short-term debt auction Wednesday, despite nagging concerns about its chances of beating a recession.

The government debt agency said it sold 12-month Treasury bills at an interest rate of 3.6 percent, down from 4.9 percent last month, and 4-month bills for 2.16 percent, lower than the previous 3.8 percent.

Demand for the shorter bills was almost seven times higher than the amount on offer and was 2.5 times higher for the 12-month bills, the agency said.

"This really is good news for Portugal," said Filipe Silva, debt manager at Portuguese financial group Banco Carregosa. "Rates are very significantly down, indicating the risk perception of Portugal is improving a lot."

Portugal doesn't need the money because its financing needs are covered by the bailout until next year, but it wants to take the measure of investor sentiment by asking for short-term loans.

Portugal has won praise from its lenders -- the European Central Bank, European Commission and the International Monetary Fund -- for its progress on implementing spending cuts and reforms attached to the bailout deal.

The budget deficit is expected to have fallen to around 4.5 percent of gross domestic product last year, officials say. That was below the year's target of 5.9 percent and substantially down from the 9.8 percent recorded in 2010.

Even so, austerity measures have brought a sharp economic downturn, with the government predicting a 3.3 percent contraction this year. Unemployment has risen to a record 14.8 percent, and one of the country's two main trade union confederation has called a strike for Thursday to protest pay and welfare cuts and tax hikes.

Portugal needs to generate growth to pay off its debts, and any sign that it may need more aid would trigger a new bout of worries about the 17-nation eurozone's financial health.

The yield on Portugal's 10-year bonds, regarded as a key indicator of investor sentiment, stood at 12.5 percent Wednesday. The yield reached 17 percent at the end of January but has been falling this month.

The bailout agreement foresees Portugal returning to bond markets in the second half of next year, though the lenders have said they are willing to provide further financial aid if Portugal meets the bailout targets but still can't afford to raise money on markets.

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