Portugals borrowing costs escalated dramatically

Wednesday, 6 April 2011 04:33

Portugals borrowing costs escalated dramatically at an auction of Euro 1.6bn worth of short-term bonds this morning. The paper which is due in June 2012 was issued at an average yield of 5.793pc, compared with 4.331pc on March 16 which is a considerable increase in that time period.

The auction was over subscribed by 1.4 times, only yesterday Moody's cut Portugal's long-term rating to Baa1 from A3.

Moody's said its decision was driven primarily by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve it's deficit reduction targets in the required period.

Portugal’s two-year government bond yield fell 7 basis points to 8.71pc, after surging 75 basis points to a euro-era record of 8.78pc yesterday, topping the rate on the nation’s 10-year debt for the first time since 2006. The between Portugal’s 10-year bonds and German bunds is now at 510 bps. 
The 10-year bond yield rose to 8.481pc, another euro-era record. The June 5 election will fall between two bond redemptions on April 15 and June 15 that total Euro 9bn.