Portugal became a full member of the euro club in January 1999,
thereby eliminating exchange rate risk on its domestic sovereign
debt.
However, its bonds have continued to trade at a substantial spread
premium to comparable German or French issues. That's attractive
for investors, but a challenge to the country's sovereign liability
managers.
Most analysts attribute this premium to one of several factors:
poor liquidity for many issues in the secondary market, the way the
debt is structured, continuing borrowing requirements, and the
overall health of and outlook for the Portuguese economy. Depending
on whom you talk to, the mix is different. The fact remains that
spreads on Portugal's five-year and 10-year issues have moved
between 29 and 41 basis points over Germany's throughout the last
year.
"It is our purpose to do something to improve this situation",
says Vasco Pereira, president and CEO of the Instituto de Gestão de
Crédito...
