Portugal cost of borrowing leaps

City A.M. Reporter
Portugal's two-year cost of borrowing hit the highest level since it joined the euro in a bond auction and its government said yields were unsustainable in the long run without Europe-wide action.

But treasury secretary Carlos Pina said the country did not require an international bailout – despite the move being viewed as inevitable by the market.

"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 per cent from gross domestic product after beating last year's target of 7.3 per cent.

The yield on the September 2013 bond soared to 5.993 per cent from 4.086 per cent 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 €1bn (£861m) on offer, with demand outstripping supply by 1.6 times.