PortugalΆs bond market triumph
BY BRENDAN DE BEER, IN GENERAL · 24-01-2013 09:23:00 · 0 COMMENTS
Demand outstripped supply for Portuguese five-year bonds by a staggering five times as Portugal scored a resounding victory in its first return to the debt markets in almost two years.
Markets have this week reacted favourably to PortugalΆs “syndicated tap” – which in essence translated into an increase of ¤2 billion in its ¤6 billion bond which matures in October 2017.
Investors were so keen to acquire these bonds that more than ¤12bn was put forward to buy the ¤2.5bn bonds.
While national and European institutions were always expected to join the queue for Portuguese bonds, it emerged that many investors came from further afield, underlying the regained confidence in Portugal.
It was expected that Lisbon would pay over five percent in interest on these bonds, but the unexpected demand brought the figure to under the five-digit threshold.
While analysts remained cautious after PortugalΆs mid-week dab-in-the-water successes, markets reacted strongly, with several listed companies, notably banks, reporting strong gains.
Millennium bcp saw its share price rise by over eight percent on Wednesday, with investors seeing the successful two billion euro bond sell-off as boding well for Portuguese banks.
National financial institutions have struggled to raise capital since the country requested a bailout in April 2011, but analysts see the past weekΆs achievements being passed on to banks, who in turn will find it easier to raise the cash to lend to businesses and individuals as confidence grows in PortugalΆs financial sustainability.
PortugalΆs bond yields have fallen markedly in recent weeks. However, these yields are still among the highest in Europe, and the country continues to be rated as “junk” by MoodyΆs, Standard & PoorΆs and Fitch, which precludes Portugal from being listed on influential bond indices.
But analysts believe this weekΆs positive outcome could encourage these ratings agencies to review the label with which Portugal is currently burdened.
As was the case when Portugal was successively downgraded in 2011, it is expected that an upward revision by any single agency will have a domino-effect, pushing other agencies to follow suit.
PortugalΆs success follows similar positive results in Spain and Ireland the past week.
The short-term outlook for the eurozone remains positive, especially with GreeceΆs exit from the single European monetary unit no longer an issue, but analysts have insisted the markets remain volatile and have called for continued caution.
Earlier this week, Portugal requested an extension to its bailout repayments from the European Commission (see page 6) which has already been greeted favourably by Brussels, especially as Ireland has made a similar plea.
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