Portugal's debt and treasury agency today issued €975 million in government bonds with demand exceeding supply by 2.43.
The ten-year bond sale was seen as an acid test for Portugal’s financial stability and the achievement of an average interest rate of 3.2524%, compared to 3.5752% in the last auction in April, has been heralded across Europe as a success.
The agency intended to place €500 to €750 million in the auction but as conditions were favourable and early demand high, a greater number of bonds was released. This will go towards compensating for the Treasury’s latest impasse over the receipt of the final Troika tranche of over €3 billion which is frozen until alternative cost saving measures are agreed in parliament – three key measures having recently been rejected by the Constitutional Court.
Investors seem willing to invest in Portuguese debt even with question marks over the treasury’s ability to repay the bonds in the future.
The pre-crisis interest rate for similar bonds was 3.13% so it now appears that Portugal does indeed have a good chance of being able to finance itself.
International credit rating agencies now will be looking at Portugal’s ability to reduce its overall debt level and seem to have papered over the fact that Portugal’s debt still is rising despite austerity, a growth in exports and the highest overall taxation rate ever seen.
