Appetite for Portuguese bonds high

Portugal has followed the current global trend of issuing sovereign bonds at the start of 2024 because of a strong appetite from investors.

Portugal’s treasury and debt entity, the IGCP put €4Bn in 10-year bonds up for auction at its usual issue syndicated in early January.
At the end of January, the IGCP auctioned another €1.699Bn worth of bonds in a regular auction for bonds of 4, 18 and 21 years maturity. It also issued €1.9Bn of Treasury notes. (12 months)
Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity. Treasury notes mature anywhere between two and 10 years, with bi-annual interest payments, while T treasury bills have the shortest maturity terms—from four weeks to a year.
The total amount of liquid financing the Portuguese State needs in 2024 stands at €11.9Bn, with a gross amount of €13.9Bn in treasury bonds expected to be issued. In January alone, 40% of this amount was raised.
“The financing needs of the Portuguese State are gradually being satisfied”, the Carregosa bank economist Paulo Rosa told the online news source ECO adding: “If yields maintain (as high as they currently are), the Portuguese State will not be able to finance itself a lower costs.”
If “a month ago it was clear that there was the beginning of a new downward cycle of interest rates from the central banks for the coming months, now that scenario looks less likely,” he added.
Paulo Rosa emphasised that the US economy remains “relatively robust” so that a cut in interest rates by the Federal Reserve cannot be expected anytime soon, while the ECB tends to mirror the monetary policy of the US central bank, aware of a possible exchange crisis”.
Portuguese companies are also using the bond market. EDP issued €750 million in green bonds, BCP issued €100 million of bonds to 2,914 small investors and two institutional investors, with a demand exceeding 11.6% of the offer.
Because investors’ risk tolerance has fallen because of volatile markets, high interest rates, geo-political uncertainty and inflation, investors have been turning to safer assets such as government bonds that offer low risk and relatively high yields.
There is also a current move by investors to invest in passive bond funds because the have lower fees and lower turnover compared to active bonds. Passively managed funds typically hold a bond until it matures. In an actively managed fund, however, the manager can benefit the fund’s investors by selling off bonds with a lower yield and shorter duration.
According to the FT, the first passive bond funds were launched nearly 40 years ago although many investors have “mostly made fun of the idea as preposterous”.
However, passive bond funds have seen cumulative flows of nearly US$2.8Tn since 2007 whereas active bond funds have only taken in a net US$1Tn because of the benefits to scaling in passive investing, an appetite which the Portuguese government is keen to exploit.