Portugal’s bond issuance costs rise across the board, with mounting financing pressure in Southern Europe

⑴ On Wednesday, the Portuguese debt management agency completed three batches of government bond auctions, raising a total of approximately €1.63 billion. The 2030 maturity bond had a bid-to-cover ratio of 2.79, significantly higher than the previous 2.07, indicating relatively strong market demand. ⑵ However, the allotment yields for all three bonds rose compared to the previous auction. The yield for the 2030 bond increased from 2.834% to 3.122%, the 2034 bond from 2.786% to 3.559%, and the 2035 bond from 3.342% to 3.632%, reflecting that the upward pressure on global interest rates caused by surging energy prices is spreading to Southern European peripheral countries. ⑶ In terms of bid-to-cover ratio, investor demand for medium- and long-term bonds weakened: the 2034 bond’s ratio fell from 2.10 to 1.66, and the 2035 bond from 2.04 to 1.52, suggesting that investors are more cautious about long-term interest rate risks. In terms of allotment prices, both the 2030 and 2035 bonds saw a clear rise, while the 2034 bond dipped slightly. ⑷ Overall, the results of the Portuguese auction show that the market’s willingness to absorb sovereign debt from highly indebted eurozone countries remains acceptable. However, if the upward trend in financing costs continues, it will gradually erode fiscal sustainability. Going forward, it is necessary to observe whether the European Central Bank will issue more reassuring signals regarding the widening of spreads, and whether Portugal’s economic growth rate can offset the increase in interest expenses.