Portuguese Bond Auction Prices, EURUSD Mostly Unchanged

Tyler Durden's picture

The most expected yet anticlimactic bond auction for 2011 has come and gone: after getting the backstops of the ECB, China and most recently, Japan, Portugal managed to sell €1.25 billion in 4 and 10 year paper. And while the the yield on the 10 year was better than expected, and notably lower than the 7% where the point had been trading on the curve recently, the 4 year priced notably weaker compared to previous. Of course, none of this would have been possible had the ECB not been buying Portuguese bonds in the open market for two days this week, and continuing into Wednesday, into the biggest farce of a market currently operating in Europe.

The results were as follows:

  • €650 MM in Oct 2014 bonds at 3.6%; bid-to-cover of 2.6 vs. Prev. 2.8 (yield 5.396% vs. Prev. 4.041%)
  • €599 MM in Jun 2020 bonds at 4.8%; bid-to-cover of 3.2 vs. Prev. 2.1 (yield 6.716% vs. Prev. 6.806%)

And just as the market was digesting the results, the EU announced that it is considering bond buybacks, Portuguese aid and debt limits at talks in the next week. 

The EURUSD while decidedly weaker this morning, has not traded much on the news:

Also the reason futures are surging as per usual, is more talk of socialized risk out of Europe, and little to do with the "successful" auction. From RanSquawk:

European bourse traded higher throughout the session, led by the Spanish IBEX 35 and Italian FTSE MIB indices, following comments from sources and EU’s Rehn that the effective lending capacity of the current European financial stability facility should be reinforced and its scope of activity widened. Early market talk that primary dealers would fully underwrite today's Portuguese debt auction, as well as continued economic growth in Germany was also noted, and in turn weighed upon bunds, which came under further pressure following a well received Portuguese debt auction, allied with comments from the EU that it will consider European peripheral bond buybacks, Portuguese aid, and debt limits in talks next week. The EU also said that it will seek a comprehensive plan to stem the debt crisis in the next meeting.

European peripheral 10-year government bond yield spreads with respect to bunds generally tightened across the board due to easing Eurozone concerns. It is also worth noting that according to Portuguese finance ministry, foreign interest in the Portuguese bond auction was 80%. In the forex market, EUR/USD moved higher leading up to the Portuguese auction, however pared back earlier gains on profit taking after well-received Portuguese data.

And some more commentary on the auction via Asymptotix:

Markets had been watching closely to see how easily - or not - the debt-hit nation could raise funds. Yields had hit a recent fresh high on its 10-year bonds of 7.3%, before falling to 6.77% on Wednesday morning before the auction. The sale was seen as a measure of Lisbon's ability to raise funds on the financial markets after its debt and deficit problems raised the amount it had to pay to borrow cash.

'ECB active'
Bond buying by the European Central Bank (ECB) had helped keep the yield below 7%.

"Probably the most important thing for the 10-year yield is that the 7% level was not breached," said Michael Leister, of West LB in Duesseldorf.

"The ECB have been very active in past days stabilising the market and sentiment. "

"It remains to be seen over the coming trading session whether this will be a turnabout for Portugal and whether recent spread tightening can be sustained."

The four-year bond yield was 5.396%.

There has been speculation Portugal could join Greece and the Irish Republic in needing an international bail-out, something it has denied. The country's borrowing costs have surged as investors worried over its financial health. Lisbon has argued its situation is different from Greece and the Republic of Ireland - both of which have agreed to bail-outs from the European Union and International Monetary Fund. It says that its deficit and debt are lower than those nations, that it has not suffered a bubble in property prices and that its banks are sound. And the European Commission has said there are no discussions under way on an EU-International Monetary Fund bail-out of Portugal. However, some analysts still believe the country will need to seek funding help.

"Our country analysts still forecast that Portugal will be required to receive funds from the emergency credit facility," said Kevin Dunning, economist at the Economist Intelligence Unit.

"And there is a high risk that if the interest charged on those funds is as high as for Ireland, this will slow Portugal's efforts to reduce its budget deficit."

Spanish auction
Analysts believe that while Europe could support Portugal, a bail-out of Spain would stretch the existing bailout fund. Greece was the first eurozone nation to take a bail-out when a three-year 110bn-euro deal was agreed. The Irish Republic's 85bn-euro bail-out package was agreed last month. A debt sale due on Thursday by Spain will also be closely watched by investors.

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Michael's picture

The PIIGS are not getting a Bail Out.

The PIIGS are getting a Debt In.

That's short for Debt Injection. It's to prevent the big banking house families from getting scalped on their bond holdings.

Oh regional Indian's picture

Nice Michael. And true. It's time to call things for what they are. Like Debt cards (Credit Cards), Debtworthiness Score (Credit Score) etc.

But, for the Portuguese bond story, take a look at this map...



Look at the positions of Iceland, Ireland and Portugal.

Outliers? I thought it was a little freaky and literal.




Sudden Debt's picture

You couldn't have said it better.

Their 2010 deficit is 7.3%, unemployment is up and any austerity programms they've done will soon affect the rest of the economy.

It's like a miracle just happend. LOOK AT US, WE DOWNPAID DEBT WITH MORE DEBT! And not a single sollution for their crisis was presented besides empty words.

They can play another round en possibly a lot more but in the end when interest payments + opperation costs > GDP it's over.

The question is, at which moment will yields just drop below zero and make it profitable for a country to own debt?

Untill then, we can only guess how many episodes there will be on this series. Let's just hope they didn't hire the writers of Lost...




Any yield that is higher then economic growth + deficit => BAD.


It's not that hard to figure out.

firstdivision's picture

They'll just raise the debt ceiling like we are about to.

Michael's picture

Wall Street gets a Bail-Out.

Main Street gets a Debt Injection(DI), for its disease.

Josephine29's picture

Of course the large amount of buying from the European Central Bank which is estimated to now own more than 20% of Portugal's total national debt has helped this auction. Many will be wondering what would have happened if it had not intervened in recent days.

Also if you look at the countries that have been "rescued" the situation has if anything got worse over time. As notayesmanseconomics points out about Greece and her situation.

If we stop and think we can see that Greece is under a rescue package effectively backed by Germany’s credit rating and yet if she borrows for 6 months she is having to pay some 4.4% more as an interest-rate than Germany would have had to.So whilst commentators can debate Greece’s position and whether such an auction is relatively better than the last the reality is that investors are unwilling to lend her money at an interest-rate which would indicate they feel the bail out is credible and remember they are only loaning the money for 6 months!


So this saga has a long way to go I feel.


EconSammie's picture

I think that the article you quote from raises a valid issue Jo. This so-called rescue package does not look like much of a rescue when you analyse the position and I notice the article also questions the sudden improvement in Portugal's fiscal deficit...


Nice timing eh?

Boilermaker's picture

...and...PRESTO...I wake up and futures are up 7 SPX handles.

I would have never suspected it.

scatterbrains's picture

I sense that the fed dumps large blocks of /ES during the day, mostly near the open or close when liquidity is highest and then wait until no one is around in the middle of the night to buy back/ lift the market.

David99's picture

FED is criminal


Elite white-collar criminals must be heavily punished
youngman's picture

I knew it would be "successful".....it had to be ..and so will tomorrows Spanish debt sale....the buyers will be sellers next week...to the ECB.....its such a scam....but for another month....everyone is saved....so they think

Dick Darlington's picture

Seems that the politicians are really going full retard to support the ponzi. Chatter abt increasing the size of the cdo-like vehicle called EFSF which will sell bonds and use at least some of the proceeds to buy periphery bonds. Talk abt leveraging the taxpayers... Just to remind, EFSF has no money. They have to raise debt in order to do anything. Mr Rehn's comments serve as an example of how retarded the whole situation is. He said that we must stop the debt spiral and in the next moment he said we must increase the size of EFSF which means they are going to print even more debt.

Tic tock's picture

The interesting thing was that ECB stepped into the 2020 rather than the 1yr. Given the profligatracy that suggests a serious breakdown in rates control over the next year..if down wasn't up

Ferg .'s picture

Why was this auction of any relevance ? Japan and China have announced their intention to backstop all toxic periphery debt and the ECB was buying Portuguese bonds earlier this week , pushing that yield back under 7 % . There was never any question that this was going to be permitted to be anything other than a successful auction .

virgilcaine's picture

Now back to the Euro and it's continued decline and eventual Fail.  The Basket where the assorted tarts are contained. You can see the effects of it all  on the lines of Ms Merkel's  face.. the weight of the entire Eu on her!! Go Angie!  Keep taking it  in the Azz for team Ben and O.

Dr. Engali's picture

You know I hear the same thing every day. The markets are bracing for such and such auction. And it's always the same thing. Auction goes off okay and the markets rally. It never changes. I think it's just a bunch of bullshit to keep retail scared. Nothing is gonna happen.  We are going up. Buy the dips if there  ever are any.

slow_roast's picture

It was just vampire squid; went extra-long equities yesterday, stepped in and funded $1.5B in bonds; rinse and repeat.  Easiest money ever made.

How the SPX can rally 8+ points on $1.5B in bond auctions is inane...if any one entity went long equities and then funded the bond purchase it would be one of the most simplistic strategies of all time. 

CrankyOldCreditGuy's picture

more interesting to me than the absolute level of the interest rate was the spread between the 4s10 collapsing from +276bps to +132bps.  the flattening of the curve tells me more about the situation than the absolute level. 

CrashisOptimistic's picture


You know I hear the same thing every day. The markets are bracing for such and such auction. And it's always the same thing. Auction goes off okay and the markets rally. It never changes. 



They can do anything they want and we simply have to remember this.  Money is an abstract concept blah blah.

There is one and ONLY one thing they cannot create out of nothingness, and that is oil.  Rest assured they will try to.  They will change how this or that is counted to try to reduce its price, but in the end all of civilization depends on it, and as it gets more and more scarce, they will be helpless.