Portugal T-bill yields rise at auction

LISBON: Portugal's borrowing costs rose at a Treasury bill auction on Wednesday, reversing a long period of declines following a recent jump in euro zone peripheral issuers' debt yields.

The increase in peripheral issuers' yields in the past few weeks has reflected concerns about a possible scaling back by the US Federal Reserve of its policy of pumping cheap money into bond markets, guidance on which may come in the Fed's statement at 1800 GMT.

The IGCP debt agency sold all 1.5 billion euros ($2.01 billion) of 6- and 18-month Treasury bills on offer, with 1.05 billion euros placed in the longer maturity, which expires after the mid-2014 end of Portugal's EU-IMF bailout.

The average yield on 18-month bills rose to 1.603 percent from 1.506 percent at the previous auction in March the last time this maturity was offered. The yield on 6-month bills rose to 1.041 percent from last month's 0.811 percent.

Still, analysts say demand for Portuguese debt remains healthy and it is too early to say if the rise in yields will endure to upset Portugal's plans to fully return to market financing before the end of the bailout.

"Despite a rise in yields, this one follows previous auctions' trend reasonable yields, quite solid, and with a decent volume of demand," said Orlando Green, debt strategist at Credit Agricole in London, adding though that right now the situation appears too "choppy" for a sustained market return.

Demand outstripped the amount placed by 2.5 times on 6-month bills and 2.1 times on the longer maturity.

After hitting their lowest levels in three years last month, Portuguese debt yields have risen along with those of other peripheral issuers on investor concerns about the next policy move by the Fed.

Investors are also worried the European Central Bank may be questioning whether it should play the role of the euro zone's lender of last resort and that Germany's Constitutional Court may block the ECB bond-buying programme that has helped to lower yields.

Still, Portuguese debt yields in the secondary market are lower than where they started the year, helped by two bond issues a five-year paper in January and benchmark 10-year paper in May that marked its return to the bond markets after its mid-2011 bailout. Lisbon is also preparing to resume bond auctions in the coming months.