Portugal became the third country after Greece and Ireland that needed to turn to the EU/IMF for a loan when raising money through bond issues on the international bond market became prohibitively expensive. In common with other such deals, the loans attracted realistic interest and required that Portugal adopt austerity measures and reforms designed to reduce the nation’s deficit to acceptable levels and place it on an even keel. The Portuguese government secured a €78 billion EU/IMF loan in May 2011 which was due to run for three years, next month.
The Portuguese authorities have just issued a bond offer worth €750 million of ten-year bonds. The offer was three times over-subscribed and attracted an interest rate of 3.58% (an eight-year low) which was sharply lower than the 5.1% rate required in February. The sale seems to suggest that Portugal will have little trouble raising finances through the markets to meet future needs. The Portuguese sale follows on the heels of a recent Greek bond auction which comfortably raised €5 billion for 5-year bonds. Similarly, Ireland which formally left its bailout last year was asked to pay a reasonable 2.96% interest rate on its bond issue in March. These observations tend to suggest that markets have finally put the EU sovereign debt crisis behind them and have returned, broadly, to business as ususal.
The reforms and conditions associated with the EU/IMF bailout have been credited with helping Portugal rein its budget deficit in from 10.1% of GDP at the height of the crisis in 2010 to stand at 4.9% in 2013.
Portugal can ask to be extended a line of credit from its EU partners, a move it would need to take on 5/5/14, but given the market reaction to this bond issue, most analysts believe that it won’t do so.