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The bond swap provides some breathing space for Portugal's finances in 2013, and has been hailed as a first, tentative step towards regaining access to international bond markets. The move echoes Ireland's debt swap in January, which presaged a return to the market in July, when Ireland sold €4.19 billion of a new five-year bond.
A programme of unpopular government cuts to spending and pensions, imposed as a condition of the country's May 2011 bailout by international lenders, has prompted a recent wave of street protests. Nevertheless, the Portuguese government is pressing on. On Wednesday, it unveiled a series of big tax increases to keep its bailout programme on track.
Against this backdrop, Portuguese bonds have been the eurozone's star performers so far in 2012, offering investors a return of more than 40 per cent, according to ING figures. 10-year bond yields, which hit a high of more than 17 per cent in January, have fallen to a little above 8 per cent in the wake of the debt swap. Bond yields move opposite of prices.