Despite Portuguese Bailout Deal, Expected To Push Country Into 2 Year Recession, Yield On Its 3 Month T-Bill Auction Rises To Record

Tyler Durden's picture

Even though Portugal announced somewhat sparse details of a €78 billion IMF/EU bailout late yesterday, the market was only modestly impressed, and even though Portuguese CDS dropped 29 bps to 620, according to CMA at 10:10 a.m. in London, the country still saw the yield on its just issued 3 Month T-Bills surge to a fresh all time record. From Reuters: "Portugal sold around 1.12 billion euros ($1.66 billion) in three-month T-bills on Wednesday, above the indicative offer, with yields rising from an auction late last month even after the country said it agreed a 78 billion euro EU/IMF bailout. The average yield rose to 4.652 percent from 4.046 percent in an auction on April 20. Portuguese debt premiums in the secondary market had risen sharply in the past two weeks on jitters about a possible Greek debt restructuring and concerns about Portugal's own fate, but retreated after the bailout deal." And to confirm that the market no longer really beleives in the bailout fairy, the Bid to Cover dropped from 2 to 1.9.

As for the actual bailout, the conditions attached to it appear set to push the country into a recession lasting at least two years:

Conditions attached to a 78 billion euros bailout of Portugal's debt-ridden economy are likely to propel it into a deep recession for two years, an official source said on Wednesday.

Caretaker Prime Minister Jose Socrates announced late on Tuesday the country had reached a three-year bailout agreement with the European Union and International Monetary Fund after weeks of negotiations with the third euro zone country to seek foreign assistance, after Greece and Ireland.

European Union and IMF officials were due to meet Portugal's main opposition on Wednesday to secure its agreement for the bailout terms, with elections due in a month.

Socrates said the agreement represented a victory for Lisbon, as it avoided very tough measures which Greece and Ireland were saddled with when they were bailed out last year.

But an official source told Reuters the austerity measures to be included in the deal, such as higher taxes, point to a "contraction of 2 percent in gross domestic product in 2011 and in 2012".

That will make it yet more challenging for the heavily indebted country, which has had some of the lowest growth rates in Europe for a decade, to ride out its crisis and return to financial health.

One wonders then just how the country is supposed to grow out of its insolvency. But that's a logical question for another day. As for some of the bailout details:

Lisbon won some leeway for its austerity drive from its lenders. This year's budget deficit target was raised to 5.9 percent of gross domestic product from 4.6 percent previously.

That still represents a sharp cut given the deficit totalled 9.1 percent of GDP last year and, under the deal, it must be lowered to 4.5 percent of GDP in 2012 and 3 percent in 2013.

The bailout deal includes up to 12 billion euros for the banking sector to recapitalise and orders banks to raise their core Tier 1 capital ratios gradually to 10 percent by the end of 2012, the official source said.

It also envisages 5.3 billion euros in privatisation revenues until 2013.

The package will need broad cross-party support because the collapse of Socrates' government last month means the winner of a June 5 snap general election will implement it.

Opposition Social Democrat leader Pedro Passos Coelho was due to meet with officials from the EU and IMF later.

Elsewhere, the market continues to wait for Greece's bankruptcy with baited breath, which will usher in the world of falling dominoes across the European landscape. Just a matter of time. But at least the EURUSD surged on this latest bailout, despite European retail sales plunging to a 16 month low of -1.0% on expectations of -0.1 even as the previous read was revised higher from -0.1 to 0.3%. Did someone not tell Europeans about the mysteriou and magical inflation fighting properties of the iPad2?

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TheGreatPonzi's picture

Where does all the money of the bailouts come from, if not the debt rolling of central eurozone countries? Ponzi, bitches. 

PY-129-20's picture

We paid more than a trillion to rebuild the Eastern part of our country after the reunification. Now, we will pay probably the same amount to bailout our neighbours (and to give it back to our banks (Deutsche Banksters) and other European banks) who will not like us anyway...this sucks.

PY-129-20's picture

Meanwhile, Germany isn't the country I used to grow up. I feel like Aristarchan. Good times are definitely over.

vocational tainee's picture

How much tax did you pay for the last year?

oogs66's picture

you guys need to get over your guilt before it drags you into bankruptcy like the rest of the world

Burnsy's picture

Extend and pretend is your friend. Buy Euros, and don't forget to lever up

Sudden Debt's picture

I'm becoming a old man...

I used to grow up in a time... long long ago... where 78 billion euro used to be quite a lot of money.


The Euro is doomed.

We should return to the latin currency system whit the silver and gold standard.

I don't mind they print money like there is no tomorrow. As long as it's made out of silver or gold.

And that's how the latin currency system worked! Anybody could mint money as much as they wanted! As long as the silver was 0.9 and also the gold.

If you where broke and had a few gold mines: No problemo!

If you where broke and had NO gold mines : Fucked => sell assets or default.

And the currency in the group remains healthy. Even if everybody was minting like crazy.


TheGreatPonzi's picture

"We should return to the latin currency system whit the silver and gold standard."

I agree, it was the best system. The Eurozone already existed during Napoleon times, but with sound money instead of fiat. 

Sudden Debt's picture

I looked up the news about portugal in my newspaper this morning.

page 27...



We just keep printing money so the banks don't need to take a haircut.

This is nothing more than bank bailout v92.651

In a healthy economic environment, they should default and start all over again.

And banks need to suffer the consequences, even if it could brake them.

Investing = risks



Alex Kintner's picture

Who needs an Economics degree in this US form of capitalism. I just picked up copies  of "The Complete Idiots Guide To Looting The Taxpayers" and "Care And Feeding Of Your Personal Corrupt Senator". Real page turners.

Burnsy's picture

I know, right? Like it's pocket change. 78bn here, 78 Bn there, pretty soon you're talking real money

kapillar's picture

Right. I remember those days to be especially enjoyable.

Josephine29's picture

This leeway on the fiscal deficit is a mirage that has fooled some but not the analysis below.

If we recall that Eurostat had looked at Portugal’s fiscal defict figures and re-written them the fact is that the original plan was now unviable. So yes Mr.Socrates is trying to misleadingly take the credit for a sequence of numbers which may look better to the uninitiated but in fact show that Portugal’s position has deteriorated yet again.


For the year just ended Mr. Socrates’s government had originally declared a fiscal deficit of 6.8% of GDP and declared it a great success as this number beat its target of 7.3% of GDP. Unfortunately for his numerical fantasies Eurostat then looked at the numbers and decided that the true number was 8.6% and then upon a closer examination decided it was 9.1%. Some might call this an attempt at misrepresentation whereas Mr.Socrates’s government calls it a "methodological dialogue".


No wonder yields are again higher on her Treasury Bills!

irishlink's picture

One knows how much seriously underwater assets are on the books of the world banks when you see the levels of Tier 1 capital that must be raised over the next few months. Who is going to provide all this money? The whole western world is in the market et the same time Squeese!!!!!

oogs66's picture

So 78 billion coming from EU/IMF.  If 50% comes from IMF, that's 39 Eur from IMF.  Assume the U.S. is responsible for 40% of that (more than we are supposed to commit to, but I'm assuming a lot of countries refuse to pony up for this).  So that's 15.5 billion Eur or $23 billion the U.S. needs to give.  Do we have that sort of money lying around or do we need to borrow?  Won't this increase our race to hitting the debt ceiling?

writingsonthewall's picture

You've got to admire the Ponzi masters - everytime they meet and obstacle they run it down with some crazy economics.

What's particularly unnerving is that unlike in the US and the UK - this money for bailouts cannot be printed - so someone is actually lending this money (Germany, France)

This is probably a good thing as the end will come sooner once the German and French people are presented with the bill.

Does anyone remember the heady days of this?

Classic - love the internet - lets you trap the critters for what they said before - unlike the MSM who have 'very short memories' and a piss poor ability to challenge the most incredible bullshit spouted by politico's.

gookempucky's picture

Truly falsifying hope and the grand illusion--cds rates continue to climb as Grease carries around 1400 bps--the system continues to make a square tire and cannot figure out the reason it goes WOMP WOMP WOMP. Others Pension Funds are in the same cliff jumpers club. It is TOTAL digital madness.

Arizona Public Safety Personnel Retirement System is planning to increase its allocation to hedge funds, HFMWeek reports. The board of the $6.1 billion system aims to invest around $60 million to Goldman Sachs Asset Management. The board of trustees may be allocating up to $50 million to New York-based hedge fund firm, Gracie Capital’s Credit Opportunities Fund. PSPRS is also allocating $40 million to EJF Asset Management’s Debt Opportunities Fund and $60 million to the Oaktree Capital Managements European Principal

Pissing into the wind.


markar's picture

After all the sht that's come out about GS front running and betting against their clients who would give them $6 let alone $60 mil to invest?