Yet more rape and pillaging of US taxpayers as Portugal now plans to join the long and exalted list of nearly bankrupt countries who wish to join the dollar devaluation bandwagon, and issue debt denominated in dollars. The P in PIIGS is in the same position as the US, needing to plug a massive budget deficit, so it has decided to do what the US does so well – issue bonds with a $ sign on them. Bloomberg reports: “Portugal is selling bonds in dollars for the first time since November as part of a plan to issue 25 percent more debt this year to fund its budget deficit. The nation is marketing $1 billion of five-year bonds that may be priced to yield about 100 basis points more than the benchmark mid-swap rate.” And this is merely the beginning: as most European countries are convinced the pain in Spain is nothing compared to what Washington is about to experience, we expect to see many more deficit whores attempting to jump on the dollar collapse bandwagon.
It’s not surprising that Portugal is coming to the market now as many European sovereigns tend to borrow more in the first half of the year,” said Ciaran O’Hagan, a fixed-income strategist at Societe Generale SA in Paris. “Portugal will likely achieve a better rate of funding in dollars so both the government and taxpayers are getting a better deal.
The proposed spread on the new bond issue gives an overall yield of 3.59 percent, according to data compiled by Bloomberg. That compares with the 3.32 percent yield offered by Portugal’s benchmark five-year issue in euros.
By issuing in dollars, European governments can reduce the cost of euro-denominated interest payments, as measured by the five-year euro basis swap. The basis swap is at 20 basis points less than the euro interbank offered rate, compared with 15 basis points less than Euribor in January, according to Bloomberg data.
Relative funding costs compared with a euro-denominated bond sale were “favorable,” said Alberto Soares, chairman of Portugal’s government debt agency in Lisbon.
It’s been our plan to issue foreign-currency bonds, and it’s just a matter of identifying the window of opportunity,” Soares said. “We may consider issuing bonds in other currencies, but there’s no concrete plan on that for now.
And so much for the lock out of Goldman Sachs from European bond issuance:
Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and Morgan Stanley are managing the sale of bonds, the banker familiar with the terms said.