Portugal issued €1.5bn in treasury bonds. 12-month interest rate hits all-time low

  • ECO News
  • 20 March 2019

The IGCP returned to the market, having issued treasury bonds with a 12 and 6-month maturity. The issuance occurs in a time when the country has been benefiting from a reduction in debt yields.

Portugal returned to the market, placing treasury bonds with a short maturity, at negative interest rates, yet again. The Portuguese Treasury and Public Credit Management Institution (IGCP) issued €1.5bn in six and 12-months treasury bonds, in a double auction organized this Wednesday. For both maturities, the IGCP got negative interest rates, and in the case of the 12-month bonds, it was indeed the lowest ever registered.

€1.2bn in 12-month treasury bonds were placed in the market, at a -0.366% rate. This value is an all-time low, even lower than the -0.363% rate registered in a comparable auction on January 16.

As for six-month treasury bonds, the IGCP issued €400m, at a -0.393% rate, slightly below the -0.399% registered in the previous session.

Investors have shown a lot of interest in the Portuguese short term debt, and the demand more than doubled the supply, by 2.14 times, whereas in the last session demand outweighed the supply by 1.84 times for bonds with the same maturity. As for six-month bonds, demand surpassed supply by 2.31 times.

“This was yet another successful auction for the IGCP, as it is continuing to benefit from the negative interest rates that are being witnessed in Europe”, said Filipe Silva, the financial asset manager in Banco Carregosa. “These historically low-interest rates are also supported by the increase in Standard and Poor’s rating of the Portuguese debt, updated last week. The short term debt auctions continue to contribute to a reduction in the debt servicing costs that the country has”.

The issuance has taken place in a time when there has been a drop in the interests paid by Portugal. When it comes to treasury bond auctions, Portugal has been able to get negative interest in all new debt issuances, and it never got financing at such a low cost. The Portuguese 10-year debt yield is now at 1.31%, after having reached a historic low this week, at 1.26%.

Certainly, some external factors are helping to create this scenario. However, it seems like one of the main factors helping the drop in interest rates was actually the upgrade in the Portuguese rating.

Last week, it was S&P’s turn to improve the Portuguese rating. The country’s minister of finance and the head of the Eurogroup, Mário Centeno, told Lusa news agency that the Portuguese state has already saved up to €1.270bn with debt issuance costs since September 2017 — the time when the country got back to investment grade.

This is the last placement of treasury bonds for the first trimester of the year, and according to the IGCP the net financing needs of the Portuguese state for the whole year of 2019 stands at about €8.6bn, from which about €4bn were already auctioned.