Portugal is offering to exchange bonds maturing in a year with bonds dated two years later. The investors will actually receive a lower interest rate on the longer-dated bonds:
The government debt agency will offer to buy 5.45 percent bonds maturing in September 2013 and will sell 3.35 percent bonds maturing in October 2015, the Lisbon-based IGCP said yesterday.
I smell a rotten fish in Denmark, or Portugal actually. Why would an investor do this? If you are to take the principal payment risk on for an additional two years, you should demand a higher interest rate.
The exchange is rigged. The major holders of this debt are the Portuguese banks. I bet that they are being “persuaded” to do the exchange. Portugal is attempting to reenter debt markets and needs to create some positive news, because there is none currently available.
Portugal’s debt is still increasing, and the economy is still shrinking. The whole Eurozone has just entered a recession, so it is unclear to me where next year’s growth and reduction in indebtedness is coming from.