PUBLIC FINANCES

Portugal sells 10-year bonds for first time since bailout

Surprise debt auction coincides with latest Lisbon visit by troika inspection team

Portugal sold 10-year government bonds on Tuesday for the first time since it sought a 78-billion-euro bailout from the IMF and the European Union as it took advantage of more relaxed conditions to test the waters before its full return to the sovereign debt market later this year.

The issue, which was not previously announced, coincided with the seventh visit by experts from the IMF, the European Commission and the European Central Bank (ECB), the so-called troika, to gauge the government of Prime Minister Pedro Passos Coelho’s compliance with its fiscal adjustment program.

Market sources said the sale of the 10-year bonds due February 2024 is being arranged by Caixa-Banco de Investimento, Citigroup, Crédit Agricole, Goldman Sachs, HSBC and Société Générale. They said the issue is expected to have raised about three billion euros at a rate close to the current yield in the secondary market of around 5.5 percent.

The last time Portugal issued 10-year bonds was in January of 2011 when it was forced to offer a yield of 6.71 percent.

Portugal made a renewed foray into the sovereign bond debt markets in January when it issued 2.5 billion euros in five-year bonds at a yield of 4.89 percent.

Foreign Minister Paulo Portas highlighted the importance of the 10-year issue as a “test” of the efforts made by the government to get its financial house back in shape. “This means that we are going to return to the markets step by step,” the minister said.

The arrival of the troika comes after the Portuguese Constitutional Court struck down several austerity measures from the 2013 budget. The items affected, including a cut in holiday pay for government workers and reductions in unemployment subsidies, were to have produced savings of 1.3 billion euros, forcing the government to find alternative measures to fulfill its deficit-reduction commitments.

The administration has announced it plans to reduce public spending by a further 4.8 billion euros by 2015 on top of cuts of some 13 billion over the past two years under the bailout program. This will involve shedding some 30,000 jobs in the civil service, five percent of the total.

Passos Coelho said he is open to talks with the opposition on alternative measures to achieve the same savings.

The government is also increasing the official retirement age to 66 years from 65 and plans to raise the working week for public sector workers from 35 to 40 hours. Spending at ministries is to be cut by 10 percent across the board.

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