MNI INTERVIEW: Portugal Debt Chief Sees Longer-Dated Demand

-IGCP Casalinho Sees Stronger Foreign Demand Boosting Longer-Dated Issuance

By David Robinson

     LONDON (MNI) - Portugal is seeing more demand for its longer-dated

sovereign debt, with foreign investors growing as a proportion of buyers,

Cristina Casalinho, chief executive officer at the Portuguese government debt

agency IGCP told MNI.

     Demand has risen from every investor segment except for hedge funds, with

banks leading the way, and foreign buyers now accounting for some 40% of the

investor base, Casalinho said in an interview at the Euromoney Bond Investors

Forum last week.

     "We see quite significant demand in the 20-year sector and we are now

starting to see a little bit of a shift further down the curve," Casalinho said.

     "You can see a lot of curve flattening and this curve flattening has

happened mostly in 10-30s," Casalinho added.

     The 10-30 year segment of the Portuguese government bond curve has

flattened by about 17 basis points since the June European Central Bank meeting

alone.

     "Every investor type, except for hedge funds, has been increasingly

involved in the PGB market ... every other investor type has been actually

increasing holdings," she said.

     The IGCP has managed to shift issuance down the curve and Casalinho

reported particular interest in its 2037 and 2045 bonds.

     In the past, "we didn't have evidence of demand for our 37s or our 45s ..

(but) we now see demand," she said.

     The short end of the curve has been pretty stable recently, with the

movement out at longer maturities.

     "People are recognizing our efforts and the progress that we have been

achieving. And I think the rating agencies ... are the last ones to acknowledge

it," Casalinho said.

     Moody's last upgraded Portugal, to the bottom of its investment grade

ranges, in October 2018 while S&P Global Ratings has the country a notch higher.

     The European Commission's 2019 staff working report on Portugal said

government revenues were benefiting from strong domestic demand, with the fiscal

deficit projected to decrease gently to 0.6% of GDP this year. Debt-to-GDP is on

a downward path, although at a projected 119.2% in 2019 it is still the third

highest in the eurozone, behind the ratios for Greece and Italy.

     Casalinho sees encouraging signs that the market is not reliant on European

Central Bank support, taking comfort from the subdued reaction to the ECB's

decision to end asset purchases in December 2018.

     "We didn't see any major disruption to the market ... So we at least have

an indication, some evidence, that having the central bank pulling out of the

market may not be such a scary thing," she said.

     Investors "can still be attracted back if the change in monetary policy

stance drives interest rates a little bit higher," she said, and normalisation

in policy setting may in itself be a good thing.

     "Investors these days are much more comfortable with holding debt than was

the case ten years ago," she said.

     "I wouldn't be so concerned about a buyers' strike or having central banks

stopping buying."

     Casalinho said the role of the debt management office was to take the

policy backdrop as it is and to be as predictable as possible.

     "One of the things investors loath is surprises, be they positive or

negative," she said.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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