Portuguese Treasury falls short of maximum target at debt auction

The Portuguese Treasury on Wednesday sold 1.85 billion euros in short-term paper, slightly below its target as parliament continued to debate the 2013 draft state budget, which includes huge tax hikes.

The government’s IGCP debt-management arm, had been looking to sell up to two billion euros in three-, six- and 12-month bills.

It issued 250 million euros in three-month paper at an average yield of 1.366 percent, down from 3.845 percent at an auction held in February. The bid-to-cover ratio fell to 8.1 times the amount sold, compared with 10.3 times in February.

Borrowing costs for the one-year bill also fell. The average yield was 2.101 percent, down from 3.505 percent at an auction held in July. The IGCP sold 770 million euros of this maturity, with bids amounting to 2.5 times the amount offered.

In the case of the six-month issue, the yield rose slightly to 1.839 percent from 1.700 percent at a tender held last month. The bid-to-cover ratio fell to 2.8 times from 3.1 times.

“Despite mounting political tensions surrounding fiscal policy, the improvement in Portugal’s perceived creditworthiness is facilitating the country’s gradual re-entry into the debt markets,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in a note after the auction.

Socialist opposition

The budget delivered to parliament on October 15 by Finance Minister Vítor Gaspar includes measures that aim to enhance the government’s finances by 5.3 billion euros, some 5.5 percent of GDP. About 80 percent of that amount is projected to come from higher revenues, mainly income tax hikes of 2.8 billion euros, and 20 percent from spending cuts.

Gaspar said at the time that a rejection of the budget would be tantamount to a rejection of the terms of Portugal’s 78-billion-euro bailout from the European Union and the IMF.

There have been massive street protests against the austerity drive. The main opposition Socialist Party has rejected the budget. The CDS-PP party, the junior partner in Prime Minister Pedro Passos Coelho’s coalition government, has yet to make an official pronouncement on the budget.