LISBON, Portugal (AP) — Financially troubled Portugal raised 1.26 billion euros ($1.74 billion) in a Treasury bill sale Wednesday and its borrowing costs fell as tension over Europe's debt woes continued to ebb, though, Ireland saw its credit rating cut by Standard & Poor's.
Portugal is one of the most vulnerable economies in the 17-nation eurozone due to its high debt and anemic growth, and it is scrambling to avoid a bailout by adopting harsh austerity measures.
While markets remain nervous about the financial prospects of Portugal and other debt-heavy eurozone nations, investors have taken some heart from pledges by European officials that they are are working on a long-term solution to the debt crisis. An announcement is expected by early next month.
The government was able to borrow Wednesday at lower interest rates, a positive sign as it seeks to keep borrowing costs from turning into a financial death spiral.
Portugal's debt agency said it raised 800 million euros in 12-month bills at an average yield of 3.7% and 455 million euros in 6-month bills at 2.98%.
Ireland was warned by S&P that it could lower the country's rating more because of doubts about the true scale of defaulting loans yet to surface in the country's largely state-owned banks.
S&P's reduction took Ireland's credit rating down one notch to A minus. That's a shallower cut than the ones imposed last month by Moody's and Fitch after Ireland's November negotiation of a potential 67.5 billion euro ($93 billion) credit line from the European Union and International Monetary Fund.
Two weeks ago, Portugal sold 12-month bills at 4.03%. In the previous auction of 6-month bills, almost a month ago, the yield was 3.69%.
Portugal's borrowing costs soared last year, reaching euro-era record highs, amid market fears about its fiscal soundness and wider concerns about the eurozone's financial stability.
But the country has experienced no difficulty raising money so far, and debt sales so far this year have drawn strong investor demand. The national debt agency said there was demand for almost five times the amount of 6-month bills on offer in Wednesday's sale while the longer-term bills drew demand 2.6 times higher than the supply.
The yield on Portugal's 10-year bonds has also dropped in recent days, reaching 6.81% — a level that is still high, however, and keeps up the pressure on Portugal to restore market confidence in its economy.
Getting cheaper loans is vital for Portugal which needs to raise up to euro20 billion on financial markets this year.
The continent's financial and economic woes are far from over as austerity budgets in Portugal, Spain, Greece and Ireland cut into economic growth.
Analysts expect an austerity plan featuring tax hikes and pay cuts to pitch Portugal back into recession for the second time in three years.
That would hurt tax revenue and place further stress on the budget which is already being drained by high interest rates on its borrowings and increased welfare payments resulting from a jobless rate that has risen close to 11%.
The government has repeatedly said it does not want or need international financial assistance of the kind provided last year to Greece and Ireland.
Moody's Investor Services has warned it may cut its A1 rating on Portugal, while Standard & Poor's Ratings Services is also considering a downgrade.
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