Interest rate on sovereign debt climbs to seven per cent

Interest rates charged by international markets to buy Portuguese sovereign debt soared to seven per cent on Tuesday.

The rate is the maximum psychological level beyond which, according to Portuguese Finance Minister, Fernando Teixeira dos Santos, the International Monetary Fund might have to be called in to intervene.

The barrier on 10-year Portuguese bonds was reached after the international markets showed little demand for them at existing rates.

“If there is a low volume operation above seven per cent in the inter-banking markets, but not yet in the secondary markets (where the majority of trading is carried out), then this barrier has almost been reached,” Bruno Costa, from Go Bulling told Portuguese newspaper Jornal de Notícias on Tuesday.

In the secondary bond markets the maximum interest rates on Portuguese 10-year Sovereign bonds climbed to 6.92 per cent according to the Bloomsberg Agency on Tuesday morning.

On Wednesday the Portuguese State was due to issue a fresh emission of public debt at a time when the markets believe that the Portuguese Government is in serious risk of debt default.

“We will hold an auction of this debt and if things don’t calm down then this is the interest rate we will have to offer,” said Filipe Silva, Debt Market Manager for Banca Carregosa.

In an interview with Portuguese newspaper Expresso on Tuesday, the Finance Minister admitted that seven per cent was the maximum interest rate that Portugal could afford to pay.

Beyond that “it would be better to call in the International Monetary Fund”.

At Wednesday’s auction, the Government needed to sell sufficient treasury bonds to raise between 750 million and 1.2 billion Euros.

President Cavaco Silva said that it wasn’t “worth criticising the markets because that wouldn’t resolve Portugal’s problems”.

The President expressed the hope that it wouldn’t be “necessary to call in the International Monetary Fund” to bail out Portugal. C.G.