Debt-stressed Portugal raised 750 million euro ($1 billion) in a Treasury bill sale on Wednesday, with a lower interest rate and high demand reflecting an easing in tension about the country's financial woes.
Many analysts expect Portugal to eventually seek a bailout like Greece and Ireland, though the government insists it can restore fiscal health without help.
The government debt agency said the yield on the 12-month bills was 4.03 percent, down sharply from 5.28 percent on the same bills last month. Demand was three times the amount on offer.
The country has experienced no difficulty raising money so far, despite concern about its debt load and meager growth. Portugal needs to raise up to 20 billion euros from financial markets this year.
The fall in the cost of Portugal's funding was more good news for the minority government, which is scrambling to get the country's finances back on an even keel amid nervousness about the wider eurozone's fiscal soundness.
European leaders are keen to prevent market contagion, especially preventing jitters about Portugal spreading to much bigger Spain, which would be much more expensive to rescue.
Ministers from the 17 euro nations meeting in Brussels earlier this week discussed boosting the size and powers of the region's bailout fund as the bloc tries to come up with a more comprehensive solution to the debt crisis. Final decisions are expected over the coming months.
Portugal last week raised 1.25 billion euros in bonds maturing in 2014 and 2020. The yield on the 2020 bond dipped to 6.716 percent from 6.806 percent the last time the government tapped investors in November, raising hopes it is restoring investor confidence with its austerity program of tax hikes and pay cuts.
Still, the outcome of Wednesday's bill sale underscored how Portugal's financial plight has deepened over the past year — 12 months ago the interest rate on its 12-month bills was 0.93 percent.
"This is no cause for great celebration, but the fact that the State was able to place the amount it wanted and that there is still market demand offers some breathing space before the next crisis phase," Filipe Silva, a debt manager at Banco Carregosa, said.
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.
Investors are concerned about Portugal's prospects for growth, with most forecasts predicting the economy will slide back into a recession this year.
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