CALDEIRÃO DE BOLSA

http://www.sfgate.com/cgi-bin/article.c ... 917102.DTL

"
It looks as if Portugal should just take the bailout, instead of the rhetoric it keeps spitting out saying it doesn't need one.

The country is set to face $10 billion Euros worth of redemptions in April and June, which would not push it towards a bailout, but certainly doesn't help either.

Yields continue to rise, with 5-year debt yielding 7.7% recently. Growth is obviously being cut on this rise in interest rates, and spending cuts are going to hampen growth more than many expect, which makes a bailout necessary. We're also starting to hear some rumors of banks and state-owned companies suffering liquidity crises. Treasury Secretary Carlos Pina told Reuters in an interview on March 9 that the country "does not need external help," despite all signs pointing the other way.

The Euro zone can probably survive without a Portuguese bailout on its own, as it accounts for less than 2% of Euro zone GDP, but the real fear is a Spanish bailout, which could cause serious problems in the region.

It's unclear whether Portugal can be faced to take a bailout, but yields will most likely not come down until the country takes the money. The ECB has also stopped buying government bonds ahead of the summit, being held in Brussels on March 11.

Since Portugal is not as bad a shape as Ireland and Greece were, the bailout could have lower rates than those previous two bailouts, which could make it easier for Portugal to accept.

"

http://www.businessweek.com/news/2011-0 ... redit.html


"
March 10 (Bloomberg) -- Investors are becoming more discriminating about European creditworthiness, increasing bets that Greece, Ireland and Portugal may restructure their debts while Spain and Italy survive the euro region’s deficit crisis.

The average annual cost of protecting of Greek, Irish and Portuguese bonds in the credit-default swaps market for five years exceeded the average of Spanish and Italian contracts by a record $496,000 this week. That’s up from $384,000 on Feb. 2 and $77,000 a year ago. Swaps on Greece signal a 60 percent probability of default in five years.
.....
‘Growth Trajectory’

“Spain’s growth trajectory looks more reassuring than that of Greece and Portugal,” they wrote. “We think that Portugal is likely to double-dip, while growth in Greece should remain in negative territory.”
.....
Investors are betting Portugal will have to follow Greece and Ireland in asking for international aid as the cost of issuing debt becomes unsustainable. EU finance ministers are meeting tomorrow in Brussels to debate how to construct a comprehensive debt-support package ahead of a summit scheduled for March 24-25.

Portugal sold 1 billion euros of bonds due in 2013 at an average yield of 5.993 percent yesterday, compared with 4.086 percent at a Sept. 8 auction. The sale attracted bids for 1.6 times the amount offered, compared with a so-called bid-to-cover ratio of 1.9 six months ago.

Default swaps on Portugal soared to 497 basis points from 387 in February, suggesting about a 34 percent chance of default, according to CMA.

“The market is starting to price in that Portugal may have to come to the table,” said Brian Yelvington, head of fixed- income strategy at Knight Capital Americas LP in Greenwich, Connecticut. “Portugal and Ireland will be very, very political in the short run and force an eventual solution.”

...
"

http://online.wsj.com/article/SB1000142 ... lenews_wsj

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FRANKFURT—Europe's economic divide showed signs of widening further, as German industry powered the region's largest economy toward strong growth, while Portugal struggled to sell €1 billion ($1.39 billion) in government bonds and Greek unemployment jumped.
.....
That pressure will mount, as those governments face escalating debt-service costs. Portugal sold €1 billion in two-year government bonds Wednesday, showing it is still able to tap the private sector for funds. But Lisbon paid dearly; 5.99% interest for only a two-year maturity. Germany pays just 1.75% for the same maturity.

Portugal has for months insisted it will continue selling bonds even at high yields, ruling out a bailout, which Greece and Ireland took last year when they faced similar financing costs. Many analysts doubt that Lisbon can stomach such financing costs much longer, a burden made even harder by economic stagnation that weighs on tax revenues.

Antonio de Sousa, a former central bank governor who heads Portugal's banking association, thinks more economic pain is on the way as belt-tightening measures announced last year start to grip the euro bloc's 10th-largest economy, which unlike others in the periphery posted modest growth last year. Portugal didn't suffer the same collapsed property bubbles as Spain and Ireland.

"In terms of growth, 2011 will be worse than 2010," he said. "You are going to have a decline in private and public consumption."

Despite such concerns, ECB officials are ready to press forward with interest-rate rises, starting as early as next month. That may hurt Spain, Greece, Ireland and Portugal, but they constitute less than one-fifth of the euro bloc's GDP. Germany, which makes up around 30%, can easily weather higher rates, especially with inflation at two-year highs. "Our responsibility is to the 331 million people of the euro area," ECB President Jean-Claude Trichet said last week when asked about the effect of higher rates on the periphery.
....
"

http://www.forexpros.com/news/interest- ... een-200586


"
Portugal's two-year cost of borrowing hit the highest level since it joined the euro in a bond auction on Wednesday, and the government said yields were unsustainable in the long run without Europe-wide action.

Still, Treasury Secretary Carlos Pina said the country did not require an international bailout which the market sees as all but inevitable.

"These are rates that are not sustainable in the longer term, but they are still bearable at the moment, which reinforces the need for measures at the European level," Pina told Reuters in a telephone interview.

His comments came just two days before the first of this month's two European summits, where euro zone leaders will take the next cautious steps in their year-long effort to quell the region's debt crisis.

"We are conscious that the rates remain high and have been worsening, implying a need for an urgent European plan of measures to make the (European Financial Stability) fund more flexible," Pina said. These measures are likely to be discussed in detail at the European Union summit on March 24-25.

He said Portugal was doing what is needed to put its public finances in order and "does not need external help". The government aims to cut the budget deficit this year to 4.6 percent from gross domestic product after beating last year's target of 7.3 percent.

The yield on the September 2013 bond soared to 5.993 percent from 4.086 percent in an auction last September, also surpassing the 5.396 yield in the sale of a longer-dated October 2014 paper in January.

"With yields at these levels this outcome will do nothing to challenge expectations Portugal is heading for a bailout and in somewhat short order," said Rabobank strategist Richard McGuire.

Still, the yield at the auction came at the lower end of secondary market rates and the IGCP debt agency sold all 1 billion euros ($1.39 billion) on offer, with demand outstripping supply by 1.6 times.

Yields on Portugal's benchmark 10-year bond had hit euro lifetime highs of 7.78 percent earlier on Wednesday, but were lower at 7.69 percent after the auction.

The premium investors demand to hold the benchmark bond rather than safer German Bunds also fell, to 439 basis points from a pre-auction high of 450 bps.

BAILOUT SIGNS

Portuguese bonds have been under heavy investor pressure on concerns the country will not be able to avoid following Greece and Ireland in requesting an international bailout.

Despite growing investor and peer pressure to request an EU/IMF bailout to ease its debt crisis, Portugal's government has dug in its heels in resisting such a move, saying it can sustain high bond yields for a while.

Filipe Silva, debt manager at Banco Carregosa in Porto said Portugal's yield curve was practically flat, with investors failing to determine the premium they should receive for each maturity.

"This happened in Greece and in Ireland before the bailouts," he said, adding though that "we are still not at the levels that require a bailout, but we are quickly approaching these levels."

Earlier on Wednesday, Portugal also held a reverse auction to buy back bonds maturing in April and June, repurchasing just 14 million euros worth of the June issue.

"Its shows that investors are not concerned that the state may not repay short-term maturities and are holding on to the bonds. But the issue is not the state's capacity to pay back the debt, but rather that the rates in the secondary market are too high and unsustainable in the long run," Carregosa's Silva said.

Portugal has around 4.25 billion euros in bonds maturing in April and around 4.9 billion in June.
"

http://www.reuters.com/article/2011/03/ ... 5S20110309

"...
By Marius Zaharia

LONDON, March 9 (Reuters) - The yield premium on the debt of weaker euro zone states over German Bunds tightened after a successful Portuguese bond sale on Wednesday, but they remained near recent peaks as concerns linger before EU summits this month.

Portuguese 10-year yields PT10YT=TWEB came off fresh euro lifetime highs after the country completed a debt sale of 1 billion euros paying a touch less than expected, but the broad sentiment remains that a bailout cannot be avoided.

Lisbon's yields stayed above the 7 percent level that forced Greece and Ireland to seek international aid, signaling market nervousness ahead of a meeting of euro zone leaders on Friday, which precedes a key summit at the end of the month that investors are hoping will deliver a solution to the debt crisis.

Analysts say policymakers could win some respite from the market if they show signs of a consensus on significant measures to support the most indebted states, although any reaction following Friday's summit could be short-lived, with investors seeing the end-March meeting as decisive.

"Peripheral bonds will remain vulnerable," said Alan McQuaid, chief economist at Bloxham Stockbrokers.

"The more it goes on the more problematic it becomes. You may see some reaction next week post Friday's summit, but most in the market know it is the one at the end of the month that is the most critical."

Portuguese 10-year paper last yielded 441 basis points over German Bunds, compared with as much as 450 bps earlier in the session, but still 3 bps wider on the day. Similar Italian and Spanish spreads also widened about 5 bps.

There was market talk that the European Central Bank was enquiring about the prices of peripheral debt on Wednesday, although traders had not seen any actual buying.

"You wonder if they're staying out to put pressure on the politicians," one trader said.

LOW CONFIDENCE
....

"

http://www.upi.com/Top_News/World-News/ ... 299688438/

"LISBON, Portugal, March 9 (UPI) -- The European Commission president said Portugal should turn to the European Union in solving its debt crisis only as a last resort, El Pais reported Wednesday.

Jose Durao Manuel Barroso said the Portuguese debt is at a level similar to that of Greece and Ireland before they had to bail out, but authorities should think twice about a bailout in Portugal, he said.

"The financial stability fund and the use of that fund, and IMF assistance as well, have to be seen as a last resort," said Barroso, who is Portuguese.

Portuguese Prime Minister Jose Socrates said resorting to the International Monetary Fund and the European Financial Stability Facility would constitute a loss of prestige and dignity for Portugal.

The European Union is looking to beef up its EFSF later this month at summit meetings."
"

http://www.reuters.com/article/2011/03/ ... 4720110309

"
....
NEW YORK, March 9 (Reuters) - The euro was little changed
on Wednesday as initial optimism after Portugal's successful
bond sale faded amid ongoing concern about euro zone debt
problems.
....
Portugal's cost of issuing two-year debt rose to its
highest since it joined the euro, highlighting the problems
facing peripheral euro zone countries and keeping alive
concerns that it will need an international bailout.
...
"The elevated cost of borrowing for Portugal and Spain is
seen as unsustainable and could result in the need for
additional EU/IMF-funded bailouts," said Omer Esiner, chief
market analyst at Commonwealth Foreign Exchange, Inc. in
Washington. "Inability of policymakers in the euro zone to
agree on measures to address the crisis is keeping the single
currency broadly pressured."
.....




"

http://seekingalpha.com/article/257290- ... e-eurozone

"
Portugal's Dignity in Danger

We want to briefly update readers on the European situation, which understandably has slowly wandered from page one to page 16 in the newspapers, given the more urgent topic of upheaval in the Arab world (where Libya is evidently descending into civil war, unrest continues to shake Bahrain and Yemen and planned demonstrations on March 11 and 20 are soon going to reveal the extent of dissatisfaction among the citizens of Saudi Arabia).

Against this backdrop, Portugal is about to lose its dignity, according to its prime minister.

"Portugal would lose its prestige and (its) dignity of being able to present itself to the world as a country that succeeds in solving its problems," he [Portugal's prime minister Socrates, ed.] said during a political meeting in Viseu, according to the Lusa news agency.



Despite austerity measures to cut its public debt, borrowing costs have been mounting over the past several weeks on bond markets, making it increasingly difficult for Portugal to raise money.



On Monday, Socrates reiterated that Portugal would not seek a financial lifeline as yields on Portuguese 10-year bonds rose above 7.5 percent for the first time since the country adopted the euro.



"When I hear opposition leaders say that the IMF will come sooner or later, that foreign aid is inevitable for our country, I say that there are limits to everything," he declared. "Because at the moment, I believe that the responsibility of any political leader is to have confidence in the Portuguese people, confidence in his country," he added.



Both Greece and Ireland also denied they needed aid before eventually seeking financial lifelines from the IMF and European Union."

We understand Socrates' reluctance to be pushed into accepting a bailout. Portugal would lose its fiscal sovereignty in that case, which we suspect is a more important factor than the question over a likely loss of dignity. However, there may no longer be much of a choice. As the WSJ reported last week, Portugal's cash reserves are estimated to have dwindled to a mere € 4 billion:

"Portugal had about €2 billion ($2.77 billion) in cash at the end of 2010, an official of the country's debt-management office said.



Fresh borrowing and other public transactions suggest Portugal has this year likely increased that number to around €4 billion. The official said in an email that the figure had risen but didn't elaborate.



The figure underscores the urgency of Portugal's predicament: On April 15, it must spend more than €4 billion to repay one of its long-term bonds. In all, Portugal needs a total of around €20 billion this year to repay bonds and to cover its government's persistent budget deficit.



[…]



"The relatively small amount of cash Portugal has on hand stands in contrast with Ireland, which has roughly similar borrowing needs this year. But Ireland had about €13 billion in cash in its main accounts heading into 2011, plus tens of billions more in a pension-reserve account that has acted as a rainy-day fund.


Still, Ireland's huge exposure to government-guaranteed banking liabilities forced it into a bailout last year. Greece, which took a bailout last spring, did so because it couldn't attract enough borrowing at reasonable rates to meet two large bond redemptions."

(our emphasis)

It appears that commercial necessity will soon win out over dignity – the problem, alas, is what will happen then? As also noted in the WSJ, market action on Monday once again suggests that Portugal will soon become a ward of the EFSF (European Financial Stability Facility):

"Yields on Portugal’s 10-year bonds hit a euro-era high of 7.5% Monday as bond markets predicted that Portugal will follow Ireland and Greece and become the next euro-zone country to ask for financial support.



The spread between Portugal’s 10-year bonds and the benchmark German bund rose eight basis points Monday to 420.5 basis points, according to Tradeweb – a worse performance than any other peripheral or "soft-core" euro-zone nation, including Greece, which was downgraded to B1 by Moody’s Investors Service Monday."

(our emphasis)

Withering Guarantees and Cheap Tricks

We suppose that Portugal as such represents a fairly small, manageable problem. It is a small economy, and therefore not too big to bail, as the saying goes.

The problem as we see it is that it appears from market data that once nations are shoved into the euro area's ICU, there is no guarantee whatsoever that this will head off an eventual default. Developments in euro area sovereign CDS spreads since our last update show that the market has begun to clearly differentiate between the various debtors, even among those belonging to the PIIGS club.

Instead of the usual strong correlation between their spreads, there is lately a widening gulf. We do expect these correlations to once again increase once Portugal is bailed out, but what we find most remarkable is that the biggest rise in CDS spreads by far has occurred in those on Greek debt, with the spread hitting a new crisis high on Monday. Remember that Greece is already bailed out and can access funds at less than half the interest rate it would have to pay in the market. In theory, this should have removed a major factor in what once looked like an unstoppable debt spiral, but apparently it has not really helped in practice. The welfare state Ponzi scheme of the heavily bureaucratized European Union may be much closer to unraveling than is generally appreciated.

In addition to the above, we would think that once Portugal is removed from the who's next list, some other nation will logically take the top spot.
....
"

http://www.cbsnews.com/stories/2011/03/ ... 1011.shtml



"
(AP) LISBON, Portugal (AP) — Europe's government debt crisis has flared up again in the run-up to two crucial meetings of EU leaders as Portugal had to pay 50 percent more to raise cash in the markets on Wednesday than it had to just six months ago.

Investor tensions grew after the Portuguese government revealed it is paying 5.99 percent interest to raise euro1 billion ($1.4 billion) in two-year bonds. That was way above the 4 percent demanded at the last similar auction in September and around four and a half percentage points more than the rate Germany has to offer — even though the two countries share the same currency.

The yield on Portugal's 10-year bonds rose a further 0.06 percentage point to 7.68 percent, a euro-era record and above the rates Greece and Ireland saw before accepting bailouts from the EU and International Monetary Fund last year.

The major concern in the markets is that the March 24-25 summit of EU leaders in Brussels will not yield the "comprehensive solution" to the debt crisis that has been trumpeted. There's also a realization that higher borrowing costs will make it far more difficult for countries like Greece and Portugal to grow themselves out of the debt mire they find themselves in.

Portugal's minority Socialist government has repeatedly spurned talk of a bailout. Prime Minister Jose Socrates said earlier this week that asking the IMF for help would "bring a loss of prestige, as well as losing the dignity of being able to present ourselves to the world as a country that can solve its own problems."

Portugal needs to raise euro20 billion this year, and the Finance Ministry says it has already collected about 30 percent of that amount. It also argues that the implicit interest rate on Portugal's total debt stock is 3.6 percent, not far from the eurozone average of 3.5 percent.

European Commission President Jose Manuel Barroso, a former Portuguese prime minister, appeared to support Lisbon's strategy of resisting pressure for a bailout.

"Resorting to the bailout fund carries costs, not just reputational costs. If a country can avoid it, it should," Barroso said at the European Parliament on Tuesday.

The yield on Portuguese 10-year bonds has held above 7 percent for 25 straight trading days, however, and many analysts believe it is only a matter of time before Portugal cuts its losses and settles for some kind of help amid predictions it is headed for a double-dip recession this year.

Lisbon is pushing for changes to Europe's bailout fund that would allow it to buy countries' bonds on the open market and even loan money to member states through credit lines and more favorable interest rates.

Portugal's protracted financial agony — and the consequences it could bring for the wider eurozone — is the main focus of concern ahead of the March 25 meeting.

Earlier this year investors appeared to believe that the eurozone would agree on a revamped bailout mechanism, set new rules on budget deficits and a system of support funds to flow from richer countries in the single currency bloc to the poorest.

However, the mood has soured since then. There are signs that Greece and Ireland are going to find it difficult to renegotiate their rescue deals. The two countries are hoping that the interest rates on their respective loans will be lowered and that they will both have a longer time to pay them back.

Investors will be keeping a close watch on a meeting of eurozone leaders this Friday to see if any progress is being made ahead of the summit in late March. Any disunity or procrastination is unlikely to be received warmly in the markets.

The growing expectation that the EU deal will disappoint is reflected in the difference between the cost of German and Portuguese ten-year bonds, which has widened in past weeks.

"The recent re-widening also reflects an easing in the market's initial optimism surrounding the unveiling of the much anticipated comprehensive package from the European authorities in the month ahead," said Lee Hardman, a currency economist at The Bank of Tokyo-Mitsubishi UFJ.

Meanwhile, Greece suffered what it termed a "completely unjustified" ratings cut from Moody's Investor Services, prompting a further spike up in its borrowing costs to new euro-era highs.

The euro has been weighed down by the weakening market sentiment. On Monday it jumped above $1.40 for the first time since November in the wake of the European Central Bank's signal that eurozone interest rates will likely to rise next month. It has fallen since then, however, and by late morning London time on Wednesday was flat at $1.39.
"

http://www.reuters.com/article/2011/03/ ... 6920110309

"
....
TORONTO, March 9 (Reuters) - Toronto's main stock index fell for a third straight session as investors fretted over escalating violence in Libya and as a bond auction in Portugal failed to ease worries about the country's debt level.
........

"Everything is coming off because of the expectations of high energy prices and I think investors are worried about Portugal as far as servicing their debt is concerned," said Azim Hajee, a senior market strategist at commodity futures brokerage Lind-Waldock Canada.
......

Worries about euro zone debt levels also weighed on the market's mood, with fears that Portugal would need a bailout, despite its bond auction.

Portugal's two-year cost of borrowing in Wednesday's bond auction hit the highest level since the country joined the euro, and an official said yields were unsustainable in the long run without Europe-wide action.
"

http://www.bloomberg.com/news/2011-03-0 ... cerns.html

"
Dagong Global Credit Rating Co. cut its ratings on Portugal’s local and foreign-currency sovereign debt to BBB+ from A- as government repayment ability erodes due to the slowing economy and "uncertainty" over fiscal changes.

Dagong’s outlook on the ratings is negative, according to an e-mailed statement. Dagong expects the Portuguese government’s financing needs will account for 20.8 percent of the country’s gross domestic product in 2011.

The debt crisis in the euro region will worsen this year, said Dagong, one of China’s five official ratings companies. BBB+ is its third-lowest investment grade rating.
"

http://www.reuters.com/article/2011/03/ ... 5820110309

excerto:

"
.......


level since it joined the euro in a bond auction on Wednesday, and an official said yields were unsustainable in the long run without Europe-wide action. [ID:nLDE72814X]

"The market has for a while absorbed the negative news, and the negative news is starting to mount," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio
......
"

http://blogs.wsj.com/marketbeat/2011/03 ... _news_blog


"
The European sovereign debt crisis is revving up again after Portugal sold its full allotment of two-year bonds, but at an elevated interest rate. Most analysts expect that Portugal could soon join Ireland and Greece in the EU ICU.

More troubling, however, is the rising chatter of a possible restructuring for Greek and Irish debt. Greek bonds, in particular, have sold off dramatically, especially at the shorter-end. The yield on two-year Greek government debt is above 15%, according to Tradeweb, which is higher than the yield on Greek 10-year debt, which is 12.7%.

Irish two-year sovereign debt is sporting 7.95% yields and its 10-year debt is yielding 9.4%. By comparison, Portugal’s two-year debt yields 6.1% and its 10-year debt is yielding 7.5%. Those yields are not considered sustainable in terms of funding Portugal’s debt requirements.

The issues surrounding peripheral European sovereign debt are being exacerbated by concerns surrounding the next round of European bank stress tests. The Journal reports this morning that the European Banking Authority is permitting individual countries to use their own definitions for key metrics, something that may raise questions about the fairness and toughness of the stress tests. Last summer’s tests failed to calm markets after analysis found the “stress” assumptions not terribly stressful.

Greece continues to look the most vulnerable to a sovereign debt restructuring. Moody’s recently downgraded the country’s debt, citing problems in collecting tax revenue and meeting the goals of its austerity plan. The EU/IMF “fix” for Greece apparently isn’t working very well, and that’s raising concerns about how the EU will deal with Ireland, and, perhaps eventually, Portugal.

“The bottom line is that you cannot make an overextended borrower – or any bankrupt entity – more creditworthy, or solvent, or better off by lending it more money,” says High Frequency Economics in a report this morning. “At the end of the day, Greece and Ireland’s debt will have to be restructured. The clock is now ticking on poor Portugal.”

The euro is flat against the dollar at 1.39, but it is down 0.8% against the Swiss franc. European stocks are flat-to-lower.
"

http://www.reuters.com/article/2011/03/ ... 6U20110309

"
(Reuters) - Portugal's two-year cost of borrowing hit the highest level since it joined the euro in a bond auction on Wednesday, and the government said yields were unsustainable in the long run without Europe-wide action.

Still, Treasury Secretary Carlos Pina said the country did not require an international bailout which the market sees as all but inevitable.

"These are rates that are not sustainable in the longer term, but they are still bearable at the moment, which reinforces the need for measures at the European level," Pina told Reuters in a telephone interview.

His comments came just two days before the first of this month's two European summits, where euro zone leaders will take the next cautious steps in their year-long effort to quell the region's debt crisis.

"We are conscious that the rates remain high and have been worsening, implying a need for an urgent European plan of measures to make the (European Financial Stability) fund more flexible," Pina said. These measures are likely to be discussed in detail at the European Union summit on March 24-25.

He said Portugal was doing what is needed to put its public finances in order and "does not need external help." The government aims to cut the budget deficit this year to 4.6 percent from gross domestic product after beating last year's target of 7.3 percent.

The yield on the September 2013 bond soared to 5.993 percent from 4.086 percent in an auction last September, also surpassing the 5.396 yield in the sale of a longer-dated October 2014 paper in January.

"With yields at these levels this outcome will do nothing to challenge expectations Portugal is heading for a bailout and in somewhat short order," said Rabobank strategist Richard McGuire.

Still, the yield at the auction came at the lower end of secondary market rates and the IGCP debt agency sold all 1 billion euros ($1.39 billion) on offer, with demand outstripping supply by 1.6 times.

Yields on Portugal's benchmark 10-year bond had hit euro lifetime highs of 7.78 percent earlier on Wednesday, but were lower at 7.69 percent after the auction.

The premium investors demand to hold the benchmark bond rather than safer German Bunds also fell, to 439 basis points from a pre-auction high of 450 bps.

Portuguese bonds have been under heavy investor pressure on concerns the country will not be able to avoid following Greece and Ireland in requesting an international bailout.

Despite growing investor and peer pressure to request an EU/IMF bailout to ease its debt crisis, Portugal's government has dug in its heels in resisting such a move, saying it can sustain high bond yields for a while.

Filipe Silva, debt manager at Banco Carregosa in Porto said Portugal's yield curve was practically flat, with investors failing to determine the premium they should receive for each maturity.

"This happened in Greece and in Ireland before the bailouts," he said, adding though that "we are still not at the levels that require a bailout, but we are quickly approaching these levels."


Earlier on Wednesday, Portugal also held a reverse auction to buy back bonds maturing in April and June, repurchasing just 14 million euros worth of the June issue.

"Its shows that investors are not concerned that the state may not repay short-term maturities and are holding on to the bonds. But the issue is not the state's capacity to pay back the debt, but rather that the rates in the secondary market are too high and unsustainable in the long run," Carregosa's Silva said.

Portugal has around 4.25 billion euros in bonds maturing in April and around 4.9 billion in June.
"

http://blogs.wsj.com/marketbeat/2011/03 ... igh-price/


"
Portugal’s Treasury and Government Debt Agency sold the maximum intended €1 billion of a two-year government bond Wednesday but the auction came at a high price and did little to reduce expectations that the country will end up asking for a bailout.

The €750 million to €1 billion auction of the 5.45% September 2013 bond was one of the most closely watched bond auctions in the euro zone for weeks because of the attention being paid to Portugal’s funding costs.

The average yield of 5.993% was below secondary market levels–the bond traded above 6% in the run-up to the auction–but was sharply above the 4.086% level set at the previous auction, indicating how the market’s assessment of Portugal has changed for the worse in the past half-year.

While Portugal still has access to bond markets, paying a yield of around 6% for 2.5-year loans “does not look very sustainable in the long run,” said Jan von Gerich, a senior analyst at Nordea in Helsinki. “The chances that Portugal would make it on its own look slim, and a request for help from the European Union and the International Monetary Fund still looks inevitable, possibly in connection with the EU summit on March 24-25.”

After widening heavily in early trading, yield spreads on two-year Portuguese bonds over Germany tightened back after the auction, to trade 0.08 percentage point tighter on the day at 4.366 percentage points.

The 7.655% yield on the benchmark five-year Portuguese bond is now above the 10-year bond, which trades at 7.592%.

Orlando Green, a strategist at Credit Agricole, said there is a danger of a further inversion of the yield curve between the five-year and 10-year maturities. “This reflects near-term risks, with potential for the market being disappointed by the possible lack of concrete measures at the EU summit later in the month,” he said.

The auctions took place amid nervous trading conditions in sovereign bond markets ahead of an extraordinary summit of euro-zone leaders March 11.

Further bond supply this week from the euro zone’s peripheral issuers–countries with a weaker fiscal position and/or lower credit rating–added to the pressure. Spain sold €4 billion of a 15-year bond via a syndicated issue Tuesday, while Italy will auction up to €5 billion of treasury bonds Friday.

Despite the widespread expectation that Portugal will need support, Wednesday’s bond auction was expected to go well “optically,” with a decent bid-to-cover ratio, ING Bank strategist Padhraic Garvey said. But it is worrying that “investors are still very much watching events from the sidelines,” he added.

Last week, after a meeting with German Chancellor Angela Merkel, Portugal’s Prime Minister Jose Socrates insisted once again that Portugal will not need outside help, but market watchers have increasing doubts whether the country can avoid requesting help from the IMF and the EU.

“The recent economic performance hasn’t been sufficiently convincing and we expect that Portugal will need help soon,” said Frank Oland Hansen, a senior economist at Danske Bank in Copenhagen, adding that an EU/IMF credit facility for Portugal is “likely to resemble the facility for Ireland.”

In a separate reverse auction earlier in the day, the agency bought back a total of €14 million of government bonds maturing in June, and no amount of a bond maturing in April. This was Portugal’s third buyback operation since Feb. 16, bringing the total of amount of bonds bought back to €339 million.
"

http://www.reuters.com/article/2011/03/ ... HC20110309

"
LONDON, March 9 (Reuters) - Pressure on peripheral issuers eased on Wednesday as Portugal completed a 1 billion euro debt sale, paying slightly less than anticipated although doing little to relieve concerns about Lisbon's longer-term financing.

Ahead of the sale, Portuguese two-year yields hit their highest since May above 6.5 percent PT2YT=TWEB and 10-year yields PT10YT=TWEB hit fresh euro lifetime highs.

But despite coming off those highs, funding costs were set to stay at untenable levels, putting pressure on European Union leaders to come up with a political solution to the region's debt crisis at meetings this month.

"While (the auction) may take a modicum of pressure off the Portuguese front end, with the cost of short-dated borrowing standing at around 6.0 percent, the broader issue of Portuguese fiscal sustainability remains unaffected," said Rabobank rate strategist Richard McGuire.

The average yield at the Portuguese auction was 5.993 percent, which was a little better than the market had anticipated [ID:nLIS002583]. "Notably, this is some way through the market," said McGuire.

Portuguese two-year yields were last at 6.3 percent, while 10-year paper yielded 440 basis points over German Bunds, compared with as much as 450 bps earlier in the day.

"The auction was always going to go OK ... What we saw this morning was short covering into the auction ... but I don't think clients are particularly interested in buying the bond," said a trader.

"We've obviously seen peripherals tighten slightly ... but the problems remain -- we've got the the March 25 summit coming up, we've got continued selling in Greece."

Euro zone leaders meet ahead of the summit on Friday. The bloc's 17 heads of state are expected to agree the next cautious steps in their year-long effort to quell the region's debt crisis but the meeting is unlikely to produce a breakthrough. [ID:nLDE7270VF]

There was market talk the European Central Bank was enquiring on prices of peripheral debt on Wednesday, although traders had not seen any actual buying.

"You wonder if they're staying out to put pressure on the politicians," the trader said.

Portugal also bought back a small amount of its bonds maturing in June ahead of the auction [ID:nLIS002582].

Greek debt remained the underperformer, with 10-year yields up another 10 basis points at 13 percent. The bonds have been particularly pressured this week after Moody's cut the country's credit rating three notches on Monday.

Greek two-year bonds currently yield around 3 bps more than 10-year paper, according to Reuters data, with the yield curve flattening a further 2 bps over the last week.

"It is clear ... that the market has become accustomed to the idea of a Greek restructuring," Nomura strategists said.

March Bund futures FGBLc1 were 15 ticks higher at 121.65.

Next technical levels are given by the extremes of Friday's trade at 121.93 (resistance) and 121.12 (support).

A break to the downside could see a test of the early February low of 120.92, with a longer-term target set around 119.20, the 61.8 percent retracement of the June 2008 to August 2010 rally.

Two-year Bund yields DE2YT=TWEB were down 1.5 bps at 1.727 percent, with 10-year yields DE10YT=TWEB down almost 3 bps at 3.277 percent.

Germany sold 1.957 billion euros of 2020 inflation linked bonds DE103052= on Wednesday. [ID:nLDE72811D]

"Inflation fears are still omnipresent and provide fertile ground for linker products," said Commerzbank strategist Rainer Guntermann. "However, valuations close to record levels start to look stretched with the ECB poised to act early (and) the euro drifting higher."
"

http://www.reuters.com/article/2011/03/ ... VB20110309



(Reuters) - Portugal's two-year borrowing cost is likely to hit euro lifetime highs in a bond auction on Wednesday but the sale is unlikely to tip Lisbon closer towards requesting a bailout as demand is expected to be fairly strong.

The auction of up to 1 billion euros ($1.39 billion) in bonds maturing in September 2013 comes just two days before the first of two European Union summits this month to discuss a comprehensive response to the debt crisis affecting the bloc's weaker members, including Portugal.

Portugal's government continues to resist growing investor and peer pressure to request an EU/International Monetary Fund bailout to ease its debt crisis, saying it can sustain high bond yields for a while. [ID:nLDE7270S9]

The government hopes its austerity drive will convince markets the country can solve its problems on its own, helping lower its borrowing costs, while it also expects the EU summits to calm investor nerves.

"I expect there will be enough demand, with yields tending to gravitate towards 6 percent," said Peter Chatwell, interest rate strategist at Credit Agricole in London.

"Six percent is not going to fundamentally upset Portugal's funding plans. This auction doesn't prove much in terms of whether they'll need to go to the EFSF or not," he said.

But he said the flattening of Portugal's yield curve suggests the market expects the debt-laden country will resort to "some kind of a package", if not to the European Financial Stability Facility in its present form.


YIELD HIGHS

The yield on Portugal's benchmark 10-year bond PT10YT=TWEB hit euro lifetime highs of 7.69 percent on Tuesday, as pressure on peripheral issuers grew after a three-notch Moody's downgrade of Greece reignited worries of a restructuring down the line.

Both Greece and Ireland were forced to request international aid after yields on their debt shot up to over 7 percent, and markets continue to regard that cost of funds as unsustainable. The 2013 bond PT2YT=TWEB to be auctioned on Wednesday currently yields 6.4 percent bid, 5.9 percent offered in the secondary market.

Filipe Silva, debt manager at Banco Carregosa in Porto expected a yield close to the secondary market levels and no problems with placing the debt.

The yield at the auction should surpass the 4.086 percent premium paid at the previous auction of the same maturity in September, and even the 5.396 percent paid on the longer October 2014 bond sold more recently in January.

Neighbouring Spain swallowed higher borrowing costs to sell 4 billion euros of a new 15-year bond on Tuesday, while Greek T-bill yields also rose at an auction.

This week's heavy schedule of new supply has further weighed on debt prices, and the periphery is likely to bear the brunt of any failure to agree a deal at the summit on a common solution to ending the euro zone debt crisis.

Foreign investors are likely to be cautious.

"We expect decent demand mainly from domestic buyers, but much less from foreign investors as scepticism prevails about Portugal's ability to finance itself without the EFSF," said Harvinder Sian, a debt strategist at RBS in London.

"This auction is a small component in that discussion. Basically they want to get something out there and it looks like this is the only bond on the curve they can sell at below 7 percent right now," he added.

Before the bond sale, Portugal will also hold a reverse auction to buy back bonds maturing in April and June. Analysts say the bond take-up has been small in the previous two such auctions this year, with investors preferring to hold the paper to maturity, and do not expect much impact this time either.

Portugal has around 4.25 billion euros in bonds maturing in April and over 4.9 billion in June. Analysts expect the April issue to be paid back without problems, but there are some doubts about the June redemption if the yield rise continues.

http://www.bloomberg.com/news/2011-03-0 ... -says.html

"Portugal must shore up investor confidence by meeting deficit-reduction targets and spurring economic growth, Nuno Brito, the country’s ambassador to the U.S., said as the nation prepares to sell 1 billion euros ($1.39 billion) in debt with yields hovering close to record highs.

“One of our main tasks is to rebuild trust,” Brito, who assumed his post last month, said in an interview at Bloomberg News headquarters in New York yesterday. “We have no option but to be overambitious.”

Portugal’s 10-year bond yield reached 7.636 percent on Feb. 10, the highest since at least 1997, according to data compiled by Bloomberg, as concern mounted the nation will need to follow Greece and Ireland in requesting a bailout from the European Union and the International Monetary Fund. Portugal’s sale of up to 1 billion euros of September 2013 notes today will be its second debt auction this year.

Portugal’s credit rating has been downgraded twice by Standard & Poor’s during Europe’s sovereign debt crisis. The rating company, which ranks Portugal at A-, its seventh worst investment grade, placed the nation on a negative outlook Nov. 30, saying the government has made little progress on boosting economic growth to offset the fiscal drag from scheduled 2011 budget cuts.

The Iberian nation’s 10-year bond yield has traded above 7 percent every day since Feb. 3. Greece, whose credit rating was downgraded three levels by Moody’s Investors Service on March 7, needed a rescue within 17 days of its 10-year yield breaching 7 percent in April, while Ireland lasted less than a month after it cracked that level in October. Brito said Portugal is structurally different from Greece and Ireland.
Wage Bill

Portugal is raising taxes and implementing the deepest spending cuts in more than three decades to convince investors it can narrow its budget gap further and avoid a rescue.

“For the first time in 15 years, in January and February, we decreased the public expenditure by 3.7 percent,” said Basilio Horta, chief executive of Aicep Portugal Global, a government-sponsored business development agency. “The government took very important measures.”

The government is trimming the wage bill by 5 percent for public-sector workers earning more than 1,500 euros a month, freezing hiring and raising value-added sales tax by 2 percentage points to 23 percent to help narrow a deficit that amounted to 9.3 percent of gross domestic product in 2009, the fourth biggest in the euro area after Ireland, Greece and Spain.

Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover the cost of maturing debt. It faces no bond redemptions until April, with repayments that month and in June worth about 9 billion euros.

Comprehensive Package

Moritz Kraemer, managing director of European sovereign ratings at Standard & Poor’s, said yesterday in London that some countries in the euro region may have their credit ratings cut further and a default by Greece remains a possibility.

European Union policy makers intend to approve a “comprehensive” package of measures at a March 24-25 summit in a bid to restore confidence in bond markets. This may include setting up a permanent rescue facility, known as the European Stability Mechanism, which will take over the existing mechanism after 2013.

Credit ratings of some euro-region countries, particularly Greece and Portugal, will also depend on the outcome of the summit, Kraemer said.

“Our concerns about features that we believe will be part of it have to do with the preferred credit status effectively subordinating senior bondholders, and also the possibility to introduce conditionality for lending that would entail the restructuring of commercial debt,” said Kraemer. “Both of those we would consider bad news for bondholders.”

As a consequence, S&P “would consider downgrading ratings of countries that are possible clients of the ESM after 2013,” he said. “These countries, in the first instance, are Portugal and Greece.”"

link:
http://www.examiner.com/european-financ ... in-exposed

"
Greece's credit rating has taken a hit as Moody's downgraded its ratings once again. Last May Greece was bailed out by the European Union to the tune of over 50 Billion Euros. The Greek system was notorious for wide scale tax evasion, and a lax public service especially in transportation. The Prime Minister and his government has embarked on a series of austerity measure to bring the deficit to mangeable levels.

As the bad news of the Greek downgrading ocurred, Portugal inched closer to being bailed out. The EU is wary of a bailout for Portugal as it will leave Spain with its 20% unemployment exposed. Belgium and Italy are also on the radar of bond investors as being in shaky fiscal waters.

The Prime Minister Jose Socrates denies that Portugal will need a bailout. Similarly Brian Cowen the Prime Minister of Ireland denied that Ireland needed a bailout. Days later Ireland agreed to a rescue by the EU and IMF or loans over 85 Billion Euros.

The yield on Portuguese bonds has soared pass 7.63%, which makes debt repayment by Portugal very treacherous. Portugal's defict stands at 7% (depending on source), and was reduced due to a series of austerity measures, when it was previously 9%. In May Prime Minister Jose Socrates out of desperation phoned the German Chancellor Angela Merkel for technical assistance in dealing with the budgetary crisis.

"

Link:
http://www.advisorone.com/article/spain ... eripherals

Excerto:
"
The announcement on Tuesday of a syndicated offering of a 15-year bond by Spain sent markets off with unease, driving yields up and putting pressure on other peripheral markets such as Portugal, which plans a bond auction of its own on Wednesday.

.....
That was borne out in the pressure on Italian and Greek debt, which also saw their yield spreads widen, and on Portuguese bonds, which courted record territory in advance of a planned Wednesday auction.

....
Michael Leister, strategist at WestLB in Düsseldorf, was quoted as saying of the offering, "This gives you an idea that the concession has to be quite heavy to give investors an incentive to buy the bond so the primary market is putting pressure on the secondary market. Also, the market was already preparing for Portugal's sale tomorrow ... where we expect to also see quite a decent concession."
...."

Boa noite

link:
http://news.google.pt/news/url?sa=t&ct2 ... ab49a.html

"
Hope springs eternal in the Portuguese breast. José Sócrates, prime minister, and his minority socialist government want desperately to avoid following in the footsteps of Greece and Ireland with a request for emergency international financial assistance. They profess to believe that, if only Europe’s leaders produce a comprehensive plan for tackling the eurozone’s debt crisis, the record-high interest rates that investors are demanding to hold Portuguese government bonds will come down and the nation will be safe.

Perhaps they will be proved right. But the prospects for a grand plan that would receive approval at a European Union summit on March 24-25 look uncertain. Meanwhile, Portuguese banks are shut out of financial markets and depend on the European Central Bank for short-term funds. Bank recapitalisations appear inevitable. If taxpayers were to pick up the bill, Portugal’s public debt would rise to almost 100 per cent of gross domestic product.

In any event, Portugal’s difficulties are far more deep-rooted than its punishingly high financing costs. The most serious problems, exposed throughout Portugal’s 12-year eurozone membership, are low economic growth and a lack of competitiveness, reflected in a large current account deficit. Mr Sócrates and his government have left it perilously late in the day to deal with issues such as Portugal’s over-protected labour market, its bloated public sector and its inefficient judicial system.

True, the government has introduced a 5 per cent wage cut for public sector workers and raised value added tax to 23 per cent. Government spending in the first two months of this year is estimated to have fallen by 3.6 per cent compared with the same period of 2010 – the first such reduction in real terms for 15 years. But the management of the public finances continues to raise eyebrows. The government’s success in reducing last year’s budget deficit to about 7 per cent of GDP owed much to a one-off measure – the transfer of pension fund assets from Portugal Telecom.

Ideally, Portugal would emulate Spain and adopt structural economic reforms aggressive enough to relieve market pressures. But if Portugal must apply for aid, it should do so pre-emptively rather than delay to the point where public opinion sees the request as a national humiliation. The lesson from Ireland is that, if a financial rescue becomes essential, it is best launched in a political atmosphere not poisoned by rancour and pride.
"

http://www.reuters.com/article/2011/03/ ... PO20110307

Excerto. Detalhes no link.
"
(Repeats story first filed on Friday with graphics, Italian
supply details)
* Portugal sale to refocus markets on sovereign debt crisis
* Small sale of 2013 Portuguese bonds seen as cautious move
* Inflation focus set to support German linker auction
"

http://online.wsj.com/article/BT-CO-201 ... 09294.html

"
-- Portugal seen joining Ireland and Greece in requesting help

-- Yield spreads rising while Spain recovers

-- 10-year yields stuck above key 7% level

-- Portugal CDS stay high while Spain, Italy fall

(Adds credit default swap prices and commentary in the 10th, 11th and 12th paragraphs.)

By Mark Brown and Nick Cawley
Of DOW JONES NEWSWIRES


LONDON (Dow Jones)--Yields on Portugal's 10-year bonds hit a euro-era high of 7.5% Monday as bond markets predicted that Portugal will follow Ireland and Greece and become the next euro-zone country to ask for financial support.

The spread between Portugal's 10-year bonds and the benchmark German bund rose eight basis points Monday to 420.5 basis points, according to Tradeweb--a worse performance than any other peripheral or "soft-core" euro-zone nation, including Greece, which was downgraded to B1 by Moody's Investors Service Monday.

Indeed, Spain's 10-year bund spreads were slightly tighter, at 208.5 basis points.

"Portugal and Spain are diverging," said one trader. "Markets are starting to price [Portugal] going to the IMF, but the low-beta countries are little changed, or tighter because bund yields are higher, and real money is drip-feeding into those markets."

Beta is a measure of volatility for a single instrument in relation to the market as a whole. In the euro-zone sovereign bond market, low-beta countries would include Belgium, Italy and Spain.

"Real money" describes investors that take a longer-term outlook when they buy and sell securities, such as pension funds, insurers and asset managers.

Portugal's 10-year bonds have now traded above 7%--widely seen as unsustainable--for four weeks. But Spanish 10-year yields are 30 basis points lower than their January peak, according to Evolution Securities.

Shorter-dated Portuguese bonds were also under pressure Monday. The 5.45% September 2013 bond added 12 basis points to trade at 423 basis points over Germany, yielding 6%, while the 6.4% February 2016 bond added 13 basis points to trade at 481 over bunds.

Portugal's next hurdle is the EUR0.75-1.0 billion auction of the 5.45% 2013 bond due Wednesday.

The market for credit default swaps--derivatives that function like a default insurance contract for debt--also appears to be bracketing Portugal with Ireland and Greece.

The euro-zone sovereigns with the widest five-year CDS spreads (or highest five-year default insurance costs) are Greece, Ireland and Portugal. The costs of CDS written on these countries' debt have been stable in 2011, according to prices from Societe Generale SA, while Spanish and Italian CDS spreads have tightened sharply--Spain by 113 basis points and Italy by 66 basis points.

Portugal's five-year CDS were 10 basis points wider Monday at around 490 basis points. That move represents a $10,000 rise from Friday in the annual cost of insuring $10 million of Portuguese sovereign debt for five years, to $490,000.

Last week, Portugal's Prime Minister Jose Socrates reiterated his insistence that Portugal will not need outside help after meeting with German Chancellor Angela Merkel.

But market-watchers have long-standing doubts on the country's ability to avoid going to the International Monetary Fund and European Union for help.

"We have argued...repeatedly that [Portugal] is on an unsustainable path and should trigger" the European Financial Stability Facility--the euro zone's bailout fund--strategists at Deutsche Bank AG said in a note published Friday.

But Deutsche thinks that "Spain is strong enough to fend for itself in the markets without external support."

In its 2011 outlook, Deutsche estimated Portugal's sovereign financing needs for this year at EUR17.73 billion.

Euro area leaders meet Friday ahead of a March 24-25 summit, when bond markets hope to see a comprehensive package of measures to tackle the debt crisis.

Fitch Ratings said last week that if the meetings don't deliver this, "Portugal could be closed out of the market."

Traders said the European Central Bank, which has bought Portuguese bonds this year as part of its Securities Market Program, hadn't been active Friday or Monday.

-By Mark Brown and Nick Cawley, Dow Jones Newswires
"

Boa noite

Link: http://seekingalpha.com/article/256829- ... assistance


Excerto
"
Portugal will be selling 750 mln to 1 bln euro of 2 1/2 year bonds on Wednesday. It will be the first bond offering since the syndicated offering in mid-Feb. It has been trying to buy back bonds that expire this year, but these have generally seen lukewarm interest. Portugal is trying to raise funds not only to cover this year's deficit, but it also faces a 5 bln euro maturities in April and another 5 bln in June (and roughly 2 bln in coupon payments). It has already raised about 6 bln euros.


.....


Today is the 22nd consecutive session that Portugal's generic 10-year yield has held above the 7% threshold, which is longer than Greece or Ireland did before seeking aid. The Portuguese government says that the overall interest rate on its debt is 3.5%. This would confirm the country's ability to withstand market yields a bit longer, but not indefinitely.

.....


Portugal's problem is the chronic grind loss of competitiveness due to high costs and low productivity. We note that Portugal's latest inflation reading of 3.6% in January is among the highest in the euro zone, suggesting it continues to lose competitiveness. At about 10.2% of GDP in 2010, Portugal's current account deficit was among the largest in the euro zone.

.....

Portugal, like Ireland and Greece, will deny intentions to ask for assistance until the moment they do ask

........

"