Portugal Bund Spreads Even Wider Following Substantially Reduced Bill Auction And Much Higher Auction Yield, CDS Hits Record

Tyler Durden's picture

Europe bailout tracker update: Portugal edition. Hey Almunia, is there anything to be concerned about in Portugal? We thought so... The country's 10 year spread is now 18 bps wider to 147 bps after the country just had an almost failed BILL (12 months) auction. The country had previously announced an indicative offer of €500 million in 12 month bill to be auctioned. The result- a sale of just €300 million at yields over 50 bps higher compared to just two weeks ago. Oh, forget Greece, Portugal CDS is now trading at record wides.

From Dow Jones:

The bad reception of the Treasury bill auction follows Bank of Portugal Governor Vitor Constancio's gloomy comments on Portugal's economy Tuesday, saying the Portuguese government will have to make better efforts to contain spending and also may need to raise taxes to cut the country's budget deficit to 3% of gross domestic product by 2013.

Market watchers, however, said the debt agency's decision to sell fewer Treasury bills than planned was a "clever" move.

"The market is now punishing Portuguese government bonds," said David Schnautz, strategist at Commerzbank AG in Frankfurt. He called the move to sell fewer bills "obviously" a "clever" one, especially as Portugal is under
scrutiny from the market, just like Greece. "It is currently very important also for Portugal not to look too desperate to secure funding," he said.

Portugal's debt agency sold EUR300 million of the January 2011-dated Treasury bills, less than the indicative amount of EUR500 million. The average, maximum and minimum yields were set at 1.379%. This is sharply higher than the average yield of 0.928% on Jan. 20.

Portuguese Prime Minister Jose Socrates, meanwhile, defended the country's economic situation in an interview with French daily Liberation on Wednesday, saying Portugal's economic situation is not worrying.

Portugal's gross government bond issuance will between EUR5.5 billion and EUR6.5 billion in the first quarter, according to the plans Portuguese Treasury and Government Debt Agency, or IGCP, published Jan. 6.

Listening to all these Prime Ministers and Commissioners, one gets the impression that nobody in Europe is worried about anything than catching up with their siesta and Ouzo breaks. This is better known as prudent risk management: old world style.