Portugal makes early return to the bond markets

Country regains a semblance of financial sovereignty with successful auction of five-year paper

Portugal took advantage of the recent improvement in funding conditions to successfully return to the bond markets for the first time in almost two years.

In an issue brokered for the IGCP by a group of banks, the government's debt-management arm sold 2.5 billion euros in five-year bonds at a rate of 4.891 percent, slightly above the prevailing yield in the secondary market. The last time the government issued five- year paper was in February 2011, when it sold 3.5 billion euros at 6.4 percent.

The issue target was initially set at two billion euros, but was raised because of the strength of demand, which exceeded 12 billion. The initial guidance price for the issue was 410 basis points above the mid-swap rate but was reduced to 395.

The yield on Portugal's 10-year government bond on Tuesday fell below 6 percent for the first time since 2010. Spain also took advantage of a favorable environment to sell 7 billion euros in 10-year bonds on record demand of 24 billion.

Wednesday's syndicated sale was a success despite the fact that Portuguese sovereign debt has been assigned junk status by the major ratings agencies.

The country asked for a 78-billion-euro bailout from the IMF and the European Union in April 2011. The terms of the bailout called for Portugal to return to the bond markets by September of this year, amid a strict austerity program and an extensive privatization plan.

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