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Portugal sells 18-month T-bills, demand strong

Portugal's Prime Minister Pedro Passos Coelho signs a "fiscal compact" enshrining common debt rules among the 17 members of the euro zone during a European Union leaders summit in Brussels March 2, 2012 .

FRANCOIS LENOIR/FRANCOIS LENOIR/REUTERS

Portugal sold €1-billion ($1.3-billion U.S.) in 18-month treasury bills on Wednesday in a successful test of market appetite for the longest-dated debt since it took an international bailout.

The average yield on the new T-bill was 4.537 percent, compared with 5.993 percent on the last 18-month bill auctioned in March 2011, before Portugal withdrew from the bond market.

The longest-dated T-bills last issued by Portugal, for 12 months, yielded 3.652 percent at an auction last month.

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The IGCP debt agency also sold €500-million in 6-month T-bills at an average yield of 2.90 percent, sharply down from February's 4.332 percent.

The total amount of T-bills sold in the auction was at the top of the indicative offer range. Demand outstripped the amount placed by 2.6 times on 18-month bills and 5.0 times on the 6-month maturity.

The successful auction contrasted with an earlier debt sale in neighbouring Spain, where yields rose on concerns about its budget gap.

"I think it is good that they got it done and the cover is pretty decent, that is a positive," said Elisabeth Afseth, fixed income analyst at Investec Capital Markets in London.

"But it's still very early to tell if Portugal will be able to return to bond markets in September next year," she added.

Yields in T-bill placements have fallen steadily over the past couple of months, allowing Portugal to increase the amounts and lengthen the maturities of its T-bill issues.

Still, most investors doubt that Portugal, which is in a deep recession, can finance itself fully in the commercial debt market from the second half of 2013 as the bailout deal envisages. They say it may need additional rescue funds, and some even express fear of a Greece-style debt restructuring.

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The government insists the country is on track to meeting its bailout goals, including the return to the markets.

Some analysts and bankers say Portugal could make a partial return to the bond market in 2013 and then gradually increase maturities and amounts of bonds.

That view seemed to be supported by European Economic and Monetary Affairs Commissioner Olli Rehn, who told Finland's MTV3 that "it would be wise to be prepared that some kind of bridge needs to be built when Portugal returns to the markets".

He gave no details and said Portugal's situation was different from Greece's.

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