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LISBON: Portugal successfully placed government debt bonds to raise a total of 1.039 billion euros (1.32 billion dollars) on Wednesday, but revealed it had to pay sharply increased rates even though the offers were oversubscribed.
Portugal is one of the eurozone countries being watched particularly closely on government debt markets, owing to concerns about how it can correct overstrained public finances while obtaining funding on the bond market.
Portugal issued bonds for 11 and three years on Wednesday.
The debt management office had signalled that it wanted to raise 750 million to 1.25 billion euros.
The office said that it had raised 378 million euros with bonds which would be redeemed in April 2021, carrying a fixed yield, or interest rate, at issue of 5.973 percent compared with 4.171 percent when the last similar issue was made in March.
However, the offer attracted 2.6 times more bids than there were bonds on offer.
The office said it had also raised 661 million euros with three-year bonds carrying a fixed yield of 4.086 percent from 3.597 percent when the last such issue was made in June. Bids amounted to 1.6 times the amount of bonds on offer.
Governments fund a shortfall between annual income and spending, the deficit, by issuing bonds to borrow money from bodies such as banks, insurance companies and individual savers.
The government offers an interest rate which appears attractive on the market at that moment, given the credit standing of the issuer and rates which lenders can obtain elsewhere.
As perceptions of the risk attached to a particular bond, or lender, change, so the prices of the debt instrument rises or falls. For example, if it falls, the fixed interest as a percentage of the new lower price rises, signalling that the issuer must offer an increased rate to attract lenders next time.
- AFP/de
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