2017 starts with public debt yields reaching 11-month high

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Page created: Wednesday, 1 February 2017 16:21 GMT | Updated: Friday, 3 February 2017 12:48 GMT

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State direct debt stood at 236 283 million euros at the end of December

The first syndicated Treasury Bonds issue of 2017 allowed the Portuguese State to obtain 3 000 million euros, guaranteeing 20% of the funding needs predicted for 2017. According to Eurostat, Portugal in the third quarter of 2016 recorded the second largest debt to GDP ratio of the 28 European Union countries. Nevertheless, the State direct debt decreased 0.5%, mainly due to the early loan repayment to the International Monetary Fund

  • As reported by the Treasury and Debt Management Agency (IGCP), the Portuguese State direct debt dropped from 237 489 million euros at the end of November to 236 283 million euros at the end of December. This decrease of 0.5% was mainly due to the early loan repayment of 457 million euros to the International Monetary Fund, as well as the early repayment of Treasury Bills in the amount of 254 million euros. In contrast, the exchange rate fluctuations increased the debt outstanding by 71 million euros.

On 14 January, Portugal returned to the debt market and issued the first syndicated Treasury Bonds of 2017. This issue collected 3 000 million euros of the new 10-year Treasury Bonds benchmark with a coupon rate of 4.125% and a yield of 4.227%, an amount above the average cost of Portuguese debt of 3.2% at the end of 2016. The syndicated issue guaranteed 20% of the funding for 2017. The amount of the State’s net financing needs for this year should be around 12 400 million euros and the IGCP informed investors that it plans to issue 15 000 million euros in Treasury Bonds.

The IGCP on 18 January auctioned 1 750 million euros in Treasury Bills, with 1 400 million euros maturing in 12 months with an average yield of -0.047%, lower than the previous yield of 0,005%, and 350 million euros maturing in 6 months with an average yield of -0.091%, lower than the previous yield of -0.027%.
In the secondary market, 10-year Treasury Bond yields peaked 4.051% on 6 January 2016, the highest in the last 11 months. According to market analysts, this increase was caused by investors’ fear of a potential early withdrawal of stimulus to the economy by the European Central Bank, due to rising inflation in the Euro Zone. On 19 January, Mario Draghi, President of the European Central Bank, ensured the maintenance of Asset Purchase Programme until December 2017 and hold off concerns about inflation, which reduced investor’s fear of stimulus withdrawal. Nevertheless, 10-year Portuguese debt yields declined to only slightly below 4% for a short period of time, hitting a new maximum of 4.141% on 27 January.

Eurostat released the data on the public debt of the third quarter of 2016 of all the 28 European Union countries. Portugal’s public debt stood at 133.4% of GDP in the third quarter, up 1.7 pp compared with the previous quarter and also a 3 pp increase over the same period of last year. In comparison with the other European Union countries, Portugal registered the second largest public debt to GDP ratio in the third quarter of 2016 and the third highest increase compared with the previous quarter.

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