Portugal's borrowing costs soar at Treasury bill tender
Government denies it is in talks with Brussels over a loan
Portugal's borrowing costs shot up at Wednesday's debt tender as the country's banks urged the administration to seek outside help - an expected denouement to the debt crisis that the caretaker government continues to resist.
The debt-management agency IGCP sold just over 1 billion euros in six- and 12-month Treasury bills, with the yield on the shorter-dated paper climbing to 5.117 percent from 2.984 percent at an auction held on March 2. The one-year paper was issued at a rate of 5.902 percent, up from 4.331 percent last month. Demand for the six-month bills was 2.6 times the amount sold for the 12-month bills and 2.3 times for the six-month.
The yield on the Portuguese five-year bond remained above 10 percent and reached 8 percent for one-year paper, making the need for Portugal to seek assistance from the European Financial Stability Facility (EFSF) increasingly likely. The government yesterday denied it was in talks with Brussels about a bridge loan to tide it over until after the June 5 elections before entering talks on an EFSF bailout.
European Commission spokesman Amadeu Altafaj yesterday insisted Brussels did not have the capacity to grant short-term loans.
The government has said it lacks the "legitimacy" to request assistance from the EFSF in the wake of Prime Minister José Sócrates' resignation on March 23, after austerity measures he proposed were rejected by parliament.
The head of the Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker, said Wednesday the situation of Portugal as well as Ireland and Greece will be discussed at an informal meeting of euro-zone finance ministers, to be held next Friday.
Ricardo Salgado, the chief executive officer of Portuguese lender Banco Espírito Santo, said in an interview late Tuesday with the TVI television channel that Portugal needed to ask the EU for a loan "urgently." Salgado said the loan could be as much as 15 billion euros, adding that the opposition parties should back the government on this.
The chairman of the Portuguese Banking Association, António de Sousa, also told the state news service Lusa that the government needed to seek aid to "meet its most immediate needs." The banks "no longer have any credit to give," he added.
Portugal's banks are heavily reliant on the European Central Bank for finance, having been cut off from the wholesale markets because of the government's debt crisis.
Moody's Investors Service on Wednesday followed Fitch and Standard & Poor's in cutting the ratings of the leading five Portuguese banks in the wake of downgrades to the sovereign rating.
