Portugal ‘strong enough to exit bailout programme without any backstop’

Banks are telling clients that Portugal is strong enough to exit its bailout programme next month without need for a financial backstop.

The country will probably opt for the Irish route and do without a precautionary credit line, according to analysts at Citigroup, Commerzbank and Danske Bank.

At 3.72%, Portugal’s 10-year bond yields are near an eight-year low and the country last week held its first auction of longer-term debt since seeking an emergency rescue in 2011.

“Portugal is expected to have a clean exit,” Copenhagen-based Danske Bank analysts Jens Peter Soerensen and Anders Moller Lumholtz said in an April 23 note.

“We have been recommending Portugal as one of our top trades for 2014 and, so far, Portugal has been the star performer.”

Investor sentiment toward Portugal has changed rapidly. Bond yields were more than twice their current level as recently as September on concern that the country might need more aid. A pick-up in the economy and a market rally spurred by the ECB means the country is looking to follow Ireland, which completed its bailout programme in December.

Portugal’s €78bn rescue package from the EU and IMF is due to end on May 17. The government will decide on how to leave the programme before a May 5 meeting of eurozone finance ministers.

The troika of officials from the EU, ECB and IMF began a final review of Portugal’s finances in Lisbon on April 22 and are expected to complete it “sometime” this week, parliamentary affairs minister Luis Marques Guedes said. The government will hold a cabinet meeting today at which it will likely discuss a budget strategy plan, he said.