LONDON: Portuguese debt yields dipped back towards eight-year lows on Tuesday, outpacing core euro zone government bonds as Lisbon prepares to sell bonds via auction for the first time in three years this week.
Wednesday's 750 million euro sale of 10-year bonds, which will follow a series of syndicated bond offerings since early 2013, will help show that the country can finance itself after its planned exit from an EU/IMF bailout on May 17.
"It is part of Portugal's long road back to becoming full market participants," said Luca Jellinek, credit strategist at Credit Agricole, adding that a strong auction would pull borrowing costs in Portugal, and the rest of the euro zone periphery, lower.
Portuguese 10-year bond yields dipped 1 basis point to 3.73 percent on Tuesday, just above above eight-year lows of 3.66 percent hit last week.
Other peripheral bond markets also edged back towards multi-year lows, tightening the gap with core markets, which came under some early selling pressure.
German 10-year yields - the euro zone benchmark - opened 2 basis points wider at 1.53 percent.
Portugal's prospects for accessing funding in the markets were "very promising", the IMF's mission chief for the country, Subir Lall, after it passed the latest review of its bailout programme.
Portugal's bailout is due to end on May 17, but the analysis of the last evaluation, to be carried out in May, and tranche payments will go on until the end of June.
The government has to decide in early May whether to request funding to support its post-bailout debt market funding.
The IMF said the country's debt outlook "remains fragile", but made no mention of any need for a precautionary loan.
Portugal will also be hoping its return to normal market funding will help persuade ratings agencies to pull it out of junk territory.
Fitch raised the outlook on Portugal's BB+ rating to positive from negative at the beginning of last month, raising the chances that the country will be lifted the one notch it needs to regain investment grade status.
Moody's and Standard and Poor's, which rate Portugal three and two notches below investment grade respectively, are scheduled to review the country on May 9.
"I do believe we have turned the corner in terms of ratings.
We are now in an upgrade cycle rather than a downgrade cycle," said Peter Schaffrik, head of European Rates and Economics Research at RBC.
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