Thursday, January 12, 2017

The state pays a 4.2% 10 years — debt is more expensive since before the troika go though – the Observer

THE IGCP has closed, on Wednesday morning, the conditions of the first issuance of debt in 2017 and published at the end of the afternoon the most relevant information. In an operation mounted by a group of international banks, the first of this genre since almost a year ago, the Treasury Portuguese has issued three billion with a rate of around 4.2%.

THE IGCP offered 352 basis points above the reference rates in the euro area (called the mid swaps) for the maturity in question, slightly below that of the 360 points that began offering. In addition to the rates of midswaps, the profitability of these titles, for those who have bought them in the issue, will be of 4,227%. With regard to fixed-interest annual that will be paid, this is of 4,125%.

this is the financing cost (10 years) the highest level since February 2014, when the troika was still in Portugal and the country was able to end the program without the need, even, of a program a precautionary measure. the The Treasure the Portuguese arrived to pay 2% to fund the 10-year (auction in February 2015).

With this issue of three billion euro, the Treasury, the Portuguese already provides one-fifth of the funding needs of the State, this in regards to the emission of Treasury bills (the main instrument, joined others like the Treasury bills and the savings in retail). The IGCP expected to emit between 14 billion and 16 billion through Treasury bonds.

To inaugurate a new line of bonds, with maturity in April 2027, the IGCP is also creating room for the European Central Bank (ECB) continue to collect in the market up to a third of the titles concerned. The program of purchases of debt imposes himself to be the limit of the ECB not to be the owner of more than 33% of the securities in each row of the obligations (the State has several lines living), which in the case of Portugal and other countries and has already become a constraint.

According to the IGCP, the total demand amounted to 8.5 billion euros, that it was satisfied about a third of the demand. More than 250 investors participated. More than 60% of investors come from the Uk, France, Italy and Spain, with the usual preponderance of on asset management — what should be the rating low Portuguese debt. the Investors are more conservative such as insurance companies and pension funds were only with one out of every ten titles.

This interest of 4.2% compares with the rate of less than 3% if paid at the beginning of 2016 to issue debt in 10 years. And, in addition, at that time put up four billion euros, 25% more than the three billion issued on Wednesday.

In the issuance of 2016, although the amount increased, paid 205 basis points above market rates, well below the 352 that were offered.

The issue of January 2016 happened before the Fitch Ratings have decided, in march, let assign an perspective positive to rating Portuguese, which made it more likely that the notation would come out of the garbage and Portugal to stop relying only on agency DBRS. Since then, the appetite of international investors for Portuguese debt has fluctuated to taste of the indications about whether the DBRS will maintain the rating, if the ECB will buy more or less national debt, if the appetite of global investors for bonds will go up or down and, finally, on the issues of internal policy and the scrutiny of the government led by António Costa.

The director of asset management of Banco Carregosa, Filipe Silva, says in reaction to widespread this afternoon that the rise of interest in relationship to last year is "reason for caution, not to alarm."

"Already expected a rate above 4% and even went a little lower than expected [4,227%, calculates the expert], so it was no surprise and, in that sense, it went well. In fact, to be an operation sindicada, was guaranteed to start," says the expert.

Filipe Silva says, however, that "we should highlight that the rate came out above the average cost of Portuguese debt (that is 3.4%), so it comes to overtax the conditions in which the country’s finances". However, "the fact that it will be above 4% is not new – we have had this rate in march and in the last quarter of 2016. If we compare with the rate of a year ago, January of 2016, the difference is quite larger. At the time we issued the debt to 10 years with a rate of 2,875%. That is, the risk, in a year, rose. Is the event not to alarm, but to caution."

Before this auction, the Observer interviewed one of the most prestigious analysts of the public debt of the City london, Richard McGuire, from Rabobank. The expert says that Portugal is vulnerable to the risks of "systemic" that plague Europe and fears that the ECB is not buying government debt enough to prevent the ascent of interest.


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