Yield on Portuguese bonds at record high

INVESTORS buying Portuguese debt demanded record high yields yesterday, forcing the Eurozone country to scale back the amount of money it wanted to borrow from the bond markets.

Portugal’s debt agency raised €750m (£640m) in a government bond auction, falling shy of the €1bn it had initially hoped to raise.

The Public Debt Agency sold €300m in 10-year bonds and €450m in four-year bonds to investors, who were only willing to take a punt on the highly-indebted economy in exchange for sky-high yields.

Lisbon paid 6.24 per cent to holders of its 10-year bonds and 4.69 per cent to holders of the four year-bonds. In its last auction, Portugal paid 5.32 per cent on 10-year bonds and 3.62 per cent on four-year bonds.

The yield on 10 year bonds – some four per cent higher than German bunds – soared to its highest in a decade and was equivalent to the amount Portugal would have to pay to borrow from the European Financial Stability Fund.

It is thought that Portugal’s debt managers scaled back their ambitions because of the high yields demanded by investors.

Investors are growing increasingly uncertain over Portugal’s ability to tackle its growing debt pile, as it struggles to slash its budget deficit from 9.4 per cent of GDP to 7.3 per cent.

“As opposed to the situation in other highly indebted Eurozone economies, the latest figures show Portugal’s deficit widening. On top of this, economic activity is expected to decelerate during the second half of 2010, following a better than expected first semester,” said IHS Global Insight senior economist Diego Iscaro.

Portugal is seen as one of the problem countries in the 16-member Eurozone. It is joined in the uneviable “PIGS” category by Ireland, Greece and Spain.

The news came shortly after Ireland turned to the debt markets to raise €1.5bn.