DENMARK/PORTUGAL - Denmark's second-biggest pension fund said it may snap up Portuguese bonds if they keep falling after the country became the third euro member to seek a bailout since Greece's fiscal woes triggered the sovereign debt crisis.
"Currently we are overweight Ireland compared to Portugal," Henrik Henriksen, chief of strategy at Copenhagen- based PFA Pension, said today in an e-mailed reply to questions. "If Portuguese bond prices fall sufficiently after the country's application for help, we may well increase our holding of those notes."
Portugal's outgoing Prime Minister Jose Socrates said last night he had no choice but to seek aid after yields on the country's 10-year debt soared to more than 8%. The country must now negotiate the terms of a bailout package that may total €75bn ($107bn). The talks will coincide with lawmaker preparations for June 5 elections following Socrates March 23 decision to quit office after he was unable to pass austerity measures through parliament.
Portugal's "bailout is probably priced in now," Henriksen said. "It will be interesting to see how this affects neighboring Spain."
PFA Pension had about $45bn of investment assets at the end of 2010. About $6.5bn was in European government bonds while about $15.5bn were in Danish state debt. The fund returned 3.4% on its foreign bonds and 5.7 percent on its Danish last year.
The yield on Portugal's 10-year government bond rose four basis points today to 8.58%.
Portugal's announcement sparked optimism that the worst of Europe's sovereign debt crisis may now be over and won't threaten Spain, the euro region's fourth-largest economy. The premium investors demand to hold Spanish debt over German bunds was little changed at 180 basis points today, and has dropped more than 100 basis points from its euro-era record in November.
"The Spanish economy has surprised on the positive side lately," Henriksen said. "The country avoided a double-dip despite massive public spending cuts in 2010; competitiveness is improving, exports have almost kept pace with the German export locomotive since the crisis started and public debt was manageable at the end of 2010."
The European Commission said the Portuguese aid request will be dealt with "in the swiftest possible manner." Portugal may initially ask for a bridging loan to bolster its finances until a new government has been formed, said David Keeble, head of interest-rate strategy at Credit Agricole Corporate & Investment Bank in New York.
Portugal reported a 2010 budget deficit last week equal to 8.6% of gross domestic product, higher than the 7.3% the government had previously forecast, after a change in EU accounting rules forced it to add more than €2bn in charges to last year's accounts.
HMRC has confirmed providers operating relief at source pension schemes can continue to collect automatic tax relief at a basic rate of 20% under new Scottish Income Tax rules.
The Pensions Regulator (TPR) is seeking "improved" powers to set a schedule of contributions in defined benefit (DB) schemes in the government's upcoming white paper, it has revealed.
New regulatory rules which require providers and advisers to produce annuity illustrations will not solve the problem of consumer detriment as they are "fundamentally" flawed, according to Retirement Advantage.
Paul Budgen is set to join financial technology and auto-enrolment (AE) firm Smart Pension as director of business development.