UPDATE 2-Crisis-hit Portugal buys some time with bond sale

* Yield rises to 5.793 pct vs forecasts of at least 6.5 pct

* Analysts say Portugal buys time, April redemptions secured

* Opposition leads in poll for June 5 election

* Need for bailout seen around June

(Adds economist, opinion poll with PSD leading)

By Andrei Khalip

LISBON, April 1 (Reuters) – Debt-laden Portugal raised 1.65
billion euros in a surprisingly strong bond sale on Friday, but
analysts said its high cost of borrowing will still force it
into an international bailout within months.

With the government reduced to caretaker status by a
political crisis, revised budget figures for last year have
added to Lisbon’s woes by stirring memories of the Greek deficit
revision in late 2009 that first stoked market concerns about
euro zone finances.

Friday’s sale “will boost confidence Portugal will be able
to fund itself until a new government is sworn in toward the end
of June,” said Rabobank strategist Richard McGuire.

“This does not, though, obviate the fact that it is
fundamentally insolvent,” he said, adding that the rising cost
of servicing the debt meant liabilities were snowballing.

Portugal needs to make 12 billion euros ($17 billion) worth
of debt payments in April and June that investors fear could
push state finances over the edge.

Bond yields spiked to new record highs on Thursday when
Portugal presented new figures showing its 2010 budget deficit
totalled 8.6 percent of gross domestic product (GDP), more than
a full point above the 7.3 percent the government had been

On the same day, President Anibal Cavaco Silva called a snap
election for June 5 following the government’s resignation
earlier this month and warned the next administration faced an
unprecedented economic crisis. [ID:nLDE7300A0]


For Take a Look on Portugal’s debt crisis [ID:nLDE68T0MG]

Graphic of Portugal’s yields: http://link.reuters.com/cuz78r

Euro zone struggles with debt http://r.reuters.com/hyb65p

For an Interactive timeline on Euro zone debt crisis click

on http://link.reuters.com/can23r


Analysts said the IGCP debt agency seemed to have lined up
investors for Friday’s debt auction beforehand.

While Portugal had to pay a 5.793 percent average yield on
Friday, far above the 3.159 percent that investors accepted when
the bond was last auctioned in July 2010, this was still well
below the 7 percent level where the bond was trading in the
market earlier on Friday.

“This auction reduces the fear that they won’t be able to
repay their debts coming due this month,” said Orlando Green at
Credit Agricole in London.

Even so, he added: “It’s unrealistic to expect they won’t be
bailed out in the end.”

Prime Minister Jose Socrates has resisted asking for an
international bailout after Greece and Ireland, but his
resignation last week after parliament rejected further budget
austerity measures prompted downgrades by rating agencies.

Giada Giani, an economist at Citibank in London, said
Portugal probably needs another 1.5 to 2 billion euros this
month to redeem its bonds, make interest payments and finance
its budget deficit, which is normally higher in April, but
raising this money should not be a problem.

The debt agency will offer up to 1 billion euros in Treasury
bills on Wednesday, with the total scheduled offerings of
short-term paper until June 15 reaching 7 billion euros. It also
said bond issuance will depend on market conditions and there
could be more extraordinary issues.

Portugal has to redeem more than 4.2 billion euros of bonds
on April 15 and 4.9 billion euros in June.

“It’s feasible now that they will resist beyond April and
drag on till June, issuing at a higher price,” Giani said.

“But you can’t go on forever — the economic incentives of
going for a bailout are more and more evident, so my feeling is
that they will ask for help before mid-June,” she said, adding
that Portugal could get foreign aid at around 4.5 percent,
compared to market yields of over 8 percent.

The main opposition party, the centre-right Social Democrats
(PSD), has been more open to the possibility of a bailout and
Giani said if opinion polls make it very clear that the PSD wins
a firm majority, bailout negotiations could start before a new
government is formed.

An opinion poll published in the Expresso weekly on Friday
showed the PSD winning the election with around 37 percent of
voting intentions, but falling short of the seats required to
win an absolute majority, while Socrates’ Socialists were still
running strong at over 30 percent.

The PSD could reach the full majority if it forms a
post-election alliance with the rightist CDS-PP, which gathered
nearly 11 percent of voting intentions in the poll.

Analysts say President Cavaco Silva may not accept a
minority government and force a coalition solution. Only one
minority administration has completed its full term since
Portugal’s decades-long dictatorship ended in 1974.

The premium investors demand to hold Portuguese benchmark
10-year bonds edged up to new euro lifetime record highs at 538
basis points from Thursday’s 536 bps.
(Additional reporting by Sergio Goncalves, Shrikesh Laxmidas;
Editing by Ruth Pitchford)

UPDATE 2-Crisis-hit Portugal buys some time with bond sale