Debt fears send Portuguese bond rates soaring
Portugal, battered by a political crisis and escalating market fears over its mounting debt burden, was forced to pay sky-high interest rates on Wednesday to raise badly needed fresh funds.
The government, battling to avoid an international bailout, moved at the same time to quell speculation it would fail to meet upcoming debt payments.
It also denied reports it has launched negotiations with European partners on a bridging loan to cover the period before general elections on June 5 to replace the government that collapsed last month.
The country has suffered a series of ratings downgrade since Prime Minister Jose Socrates resigned on March 23 after parliament rejected his austerity plan aimed at balancing the strained public finances.
The longer the uncertainty goes on, the higher the interest rates Portugal has to pay in a replay of the Greek and Irish bailouts last year.
On Wednesday, the treasury sold 1.005 billion euros ($1.437 billion) of 6- and 12-month bonds at auction, slightly above the top end of its targeted range, the government debt agency IGCP said.
But the average yield, or rate of return earned by investors, jumped to 5.902 percent for the 12-month bills from 4.331 percent at the last such auction on March 16.
For the 6-month paper, the rate soared to 5.11 percent from 2.984 percent on March 2.
"Portugal has once again managed to sell its debt but the rates are prohibitive," said Filipe Silva, a strategist at the Banco Carregosa.
Portugal must repay some 4.2 billion euros ($6.0 billion) of debt by April 15 and another 4.9 billion euros ($7.0 billion) by June 15.
"While we believe that the country has sufficient funds available for next Friday's redemption, we doubt that it is capable -- at the moment -- of meeting the June obligation," analysts at Lloyds Bank Corporate Markets told Dow Jones Newswires.
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