Earlier today Portugal, by the skin of its teeth, sold €1 billion in 6 and 12 month Bills, which however may be its last auction before the country is forced to beg for a bailout: the yield on the 6 Month bill rose from 2.984% three weeks ago to 5.117%, while the 12 Month surged from 4.311% to 5.902%. This is simply a ridiculous yield and at this rate pretty soon the country will be paying more to issue Bills than Bonds. "I suspect that as far as the market is concerned, funding at these levels can only be viewed as a temporary measure," said Peter Chatwell, rate strategist at Credit Agricole. "There has been a very important signal from the
banks for the future," said BNP Paribas analyst Ioannis Sokos. "Portugal
can still make it through April, but probably won't get to June without
a bailout." Which incidentally is when the country is going to have new government elections: cruising through a period of insolvency without a man in charge is probably not the best idea. But what is worst is that the country's social security fund is once again rumored to have been a buyer of last resort. Since these bonds will eventually default, Portugal's pensioners will not be happy to find out that a notable portion of their retirement capital will soon be wiped out.
Two business newspapers said the public social security fund has been selling overseas financial asets in the last few days to help finance the state by buying sovereign debt at auctions.
Jornal de Negocios and Diario Economico said the Social Security Financial Stabilisation Fund planned to buy T-bills in Wednesday's auction. No one was available for comment at the fund.
The Portuguese banks suggested the government should seek a bridging loan, but neither the EU nor the IMF is likely to offer such temporary finance without negotiated formal conditionality.
Analysts say the high yields, which have already topped 10 percent for five-year bonds, are unsustainable. The fall in the value of the bonds also undermines its banks, who have been substantial buyers of government debt.
"The rating actions follow the downgrade of Portugal's debt ratings and also reflect the weakened standalone credit profile of most Portuguese banks," Moody's said in a statement.
The banks concerned included Caixa Economica Montepio Geral, Caixa Geral de Depositos, Banco Comercial Portugues, Banco Espirito Santo, Banco BPI, Banco Santander Totta and Banco Portugues de Negocios.
Portugal has to repay over 4.2 billion euros in maturing bonds on April 15, and then another 4.9 billion euros in June. Including coupon payments and deficit financing, its requirements until June are put at 12 to 15 billion euros.
"From the pure cash perspective, April should be OK, even with coupons and deficit financing, but then if the domestic bid disappears, there's not much room for manoeuvre," Commerzbank's Schnautz said, referring to the local banks' threats.
He expected the six-month T-bills to yield between 5.5 and 6 percent -- about double the 2.98 percent average yield in the previous auction on March 2 -- while the borrowing cost for the 12-month paper should rise above 6 percent compared to 4.33 percent in mid-March.
At this point we are merely seeing a repeat of what happened in Greece last year. And the longer it takes Portugal to admit defeat the greater the cost for everyone involved. But all shall be well: after all there is a big, fat CDO at the bottom of it all to bail everyone out. And let's not forget that the ECB is about to hike rates and set off a chain of events that will end the Eurozone.
Surely this will end so very well.