Bailed-out Portugal pays less to borrow $2.6B

[September 19, 2012]  LISBON, Portugal (AP) -- Portugal's interest rates fell steeply in a short-term debt auction Wednesday where it borrowed euro2 billion ($2.61 billion), evidence that the European Central Bank's recently-unveiled plan to intervene in bond markets is boosting investor confidence.

The Treasury and Public Debt Management Agency said it raised euro1.291 billion in 18-month bills, paying a rate of 2.967 percent compared with 4.537 percent in the last comparable auction in April. It said there was market demand for double the amount on offer.

It also raised euro709 million in 6-month bills at a rate of 1.7 percent, down from 2.292 percent in July and with demand three times higher than the amount offered.

The Treasury had planned to raise up to euro1.75 billion in the placement.

The drop in borrowing rates is a positive sign for Portugal, which needed a euro78 billion bailout last year when, after a decade of weak growth, it was engulfed by the financial crisis plaguing eurozone countries.

Portugal is locked into a debt-reduction and economic reform program demanded by lenders in return for the financial rescue. It has earned praise for abiding by the agreement despite a recession which is forecast to extend into next year and a record unemployment rate of 15.7 percent.

Investors have also been heartened by the European Central Bank's recent pledge to support struggling countries like Portugal by purchasing unlimited amounts of their government debt.

The successful auction Wednesday "was mostly due to the steps taken by the ECB," Pedro Santos, a broker at Banco Espirito Santo in Lisbon, said.

"Obviously, the fact that Portugal is complying with the (bailout) agreement was a big help, but the ECB's measures are broader and show the world it will do everything it can to protect the eurozone and weaker countries like Portugal," he said.

[Associated Press]

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