Portugal's borrowing costs rose at an auction of €1 billion of 12-month bills this morning.
The securities due February 17th 2012, were issued at an average yield of 3.987 per cent, the country's debt management agency said. That compares with an average yield of 3.71 per cent at a previous auction of 12-month bills on February 2nd.
The auction attracted bids for 1.9 times the amount offered, compared with a bid-to-cover ratio of 2.6 in the February 2nd sale. The IGCP on February 10th said the indicative amount for today's auction was between €750 million and €1 billion.
Separately, the European Central Bank may have bought nearly €18 billion of Portuguese bonds since May as part of its program to stanch the sovereign- debt crisis, according to Societe Generale SA. The French bank, one of Portugal's 18 primary dealers, estimated the ECB's holding of the nation's bonds accounted for 15 percent of its total debt outstanding.
Any bond-purchase program will only temporarily cap bond yields, and the government will need to tackle its deficit problem, the bank said in an e-mailed research note. "Without real austerity over the next two to three years, no amount of liquidity provision or official bond buying is going to make much difference, other than adding to moral hazard," wrote Societe Generale analysts including Paris-based Ciaran O'Hagan.
The ECB, which has propped up markets by buying €76.5 billion of struggling countries' bonds, is looking to hand over that job to governments through the European Financial Stability Facility, a bailout fund, so that it can focus on its main mission of combating inflation. Portugal is raising taxes and implementing the deepest spending cuts in more than three decades, aiming to convince investors it can narrow the euro-region's fourth-biggest budget gap and continue to tap markets for funding.
The yield on Portuguese 10-year bonds was little changed at 7.41 per cent as of 11:34 am in London.
It reached 7.64 per cent on February 10th, the highest since the introduction of the euro in 1999.
Bloomberg