2 Dec 2010

Higher rate charged for Portuguese bonds

8:47 am on 2 December 2010

Portugal has succeeded in borrowing money on the international financial markets, but had to pay a high interest rate.

The auction was closely watched amid speculation that Portugal could be the next Eurozone country to need an international bailout.

The sale of 500 million euros ($US651 million) worth of one-year bonds was 2.5 times oversubscribed. The yield was 5.3% which the BBC's business editor describes as "hugely expensive" for one-year bonds.

Bonds are effectively loans, in this case made by investors to governments.

The higher the yield of a bond at auction, the riskier investors think that loan is, so the government has to offer them a higher rate of return to ensure it attracts enough buyers.

Previous one-year Portuguese bonds had a yield of 4.8%.