By Agency reporter

Thursday, 18 Nov 2010

Portugal‘s borrowing costs increased at an auction of ¤750m ($1.01bn) of 12-month bills, with demand falling as Europe‘s fiscal crisis weighed on investors, Bloomberg reported on Wednesday.

The securities, due November 18, 2011, were issued today at an average yield of 4.813 per cent, the country‘s debt management agency said. That compares with an average yield of 3.26 per cent at a previous sale of 12-month bills on November 3. The auction attracted bids for 1.8 times the amount offered, compared with a bid-to-cover ratio of 2.2 on November 3. The agency had set an indicative amount of ¤750m for the auction.

”This increase in yield was very accentuated and surprising because the market was pointing at figures in the order of 4.3 per cent or 4.4 per cent,” Filipe Silva, who manages ¤60m, including Portuguese bonds, at Banco Carregosa SA in Oporto, Portugal, said in an e-mailed note. ”Demand also fell quite a lot.”

Concern that governments may struggle to cut budget shortfalls and curb debt has pushed up borrowing costs for Portugal and other high-deficit European countries this year. Portugal had the euro region‘s fourth-largest budget gap in 2009, behind Greece, Ireland and Spain.

European Union and International Monetary Fund experts will start scanning the books of Ireland‘s debt-laden banks tomorrow in a prelude to a possible aid package to stem Europe‘s widening fiscal crisis. Finance chiefs from the 16-country euro area said the joint assessment will determine whether Ireland can patch up the banking system on its own or needs to fall back on the EU- IMF 750 billion-euro rescue fund.

 

Source: Punch