- Title: PORTUGAL: Lisbon pays high yield to sell short-term debt
- Date: 7th April 2011
- Summary: LISBON, PORTUGAL (FILE) (REUTERS) VARIOUS OF MILLENIUM BCP
- Embargoed: 22nd April 2011 13:00
- Location: Portugal, Portugal
- Country: Portugal
- Topics: Finance
- Reuters ID: LVAAHL5LNRPVHFG2KFTDUKQGH9OR
- Story Text: Yields rose sharply in Portugal's short-term debt auction on Wednesday (April 6), intensifying pressure from local lenders and ratings agencies to seek a bailout.
The sale of a billion euros in 6- and 12-month treasury bills brought temporary relief for the caretaker government in its effort to withstand having to request international aid as the country grapples with soaring rates, political uncertainty and rating downgrades.
But the yield on 12-month T-bills spiked to 5.902 percent from 4.311 percent three weeks ago, and on six-month bills to 5.117 percent from 2.984 percent, highlighting the precarious position ahead of big redemption this month and in June.
Portugal's borrowing costs have soared since the minority Socialist government resigned last month after a parliamentary defeat on tougher austerity measures, casting the country into political limbo. An early general election is set for June 5.
Moody's rating agency, which cut the country's sovereign creditworthiness by one notch on Tuesday (April 5), downgraded seven local banks by one or more notches, citing concerns over both the banks' own situation and government's ability to support them.
Banking executives delivered an unprecedented warning to the government on Monday (April 4) that the country's public debt crisis, and the falling value of the sovereign bonds they hold, is weakening the position of the banks themselves.
Portugal's main banks have threatened to stop buying government debt, urging the caretaker cabinet to seek a short-term loan to tide it over a pre-election limbo that prompted Tuesday's credit rating downgrade.
Bankers said the country urgently needs a bridge loan of up to 15 billion euros ($21 billion) to secure financing until the June 5 election.
The chief executive of Portugal's second-largest bank, Ricardo Espirito Santo Salgado, told TVI television that banks could not continue lending to the state under current conditions.
"It is urgent to request it (a loan). It is serious if it is not done because it is necessary to neutralise the effect of the rapid rise in interest rates, to calm markets and calm down the Portuguese who are facing elections," the CEO said late on Tuesday.
"We are in a situation in which banks are being damaged, naturally they cannot give more credit to public companies and the state under current conditions," he said.
"Due to the worsening of (credit) ratings, banks have to review their situation."
Earlier, financial sources told Reuters the heads of the country's leading banks met Bank of Portugal Governor Carlos Costa on Monday to convey their message.
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