Portugal borrowing costs largely shrug off leftist government

LISBON: Portugal's 10-year borrowing costs edged marginally higher in an auction on Wednesday from the previous sale last month after Tuesday's appointment of Socialist Antonio Costa as prime minister who will have to rely on support from the far left.

As in the previous sales and in the secondary market, investors prefer to focus on the European Central Bank's bond-buying programme encompassing Portuguese debt.

"The issue has been well received. There is overriding support for Portuguese bonds from the ECB and this is despite the appointment of a left government where the hard left is going to have a say," said Orland Green, debt strategist at Credit Agricole.

"But the market is not too concerned about this and the auction is seen as a relief ... We're positive in the medium term about Portugal and happy to take on Portuguese debt," he added.

State debt agency IGCP sold 995 million euros, practically all it had on offer, in 2025 bonds at an allotment yield of 2.4294 percent, up from 2.3975 percent in the previous auction in October.

The yield came in just below secondary market levels of 2.45 percent at the time of the auction, and well below Tuesday's settlement of 2.53 percent.

Demand in the auction outstripped the amount placed by 1.91 times.

Portugal's president on Tuesday named Costa as prime minister, ending weeks of political stalemate and paving the way for the first, if potentially unstable, Socialist government reliant on the far left for its survival.

The Socialist Party has promised to end years of harsh austerity, increase families' disposable incomes and help the poor, who suffered during Portugal's debt crisis and a bailout that ended last year, while still cutting the deficit in line with Portugal's European commitments.

Canadian ratings agency DBRS earlier this month kept Portugal's credit standing at the lowest investment grade level, leaving the country one last non-junk rating to qualify its bonds for ECB purchases, but warned that a reversal of reforms to strengthen the economy and public finances could put the rating under pressure. Still, DBRS maintained the rating outlook at stable.