Portugal carried out a public debt auction that placed €1.628 billion through three Treasury Bond issuances, but faced a generalized rise in interest rates across all maturities. The operation was conducted by the Treasury and Public Debt Management Agency (IGCP), at a time when the country had just seen its rating upgraded by Fitch to A+. The nine-year issuance yielded €602 million at an average interest rate of 3.632%, the eight-year raised €626 million at 3.559% and the four-year raised €400 million at 3.122%, all values above the previous comparable issuances.
The rise in financing costs reflects a global context of increasing sovereign yields. The Middle East conflict has rekindled inflationary concerns and reinforced expectations of further interest rate hikes by the European Central Bank, with a 25 basis point increase anticipated for the next meeting. The Ukraine war also contributes to inflationary pressure, with attacks on Russian refineries and Black Sea ports reducing the supply of fuels and grains in the international market.
The atmosphere of apprehension extends to the Eurozone, with Germany issuing ten-year debt at the highest yield since 2010. In the secondary market, the ten-year German Bund yield rose to 3.395%, while the equivalent Portuguese rate advanced to 3.741%, the highest value since April 2017.
Florian Späte, senior bond strategist at Generali Investments, believes the yield rise hasn't concluded yet, pointing out that fiscal risks, persistent inflation and growing financing needs will continue to drive term premiums. However, he expects Eurozone peripheral debt spreads to remain range-bound, distinguishing France's vulnerability, whose fiscal imbalances and political uncertainties leave its bonds more exposed to risk premium widening.
