LISBON Portugal's one-year borrowing costs rose on Wednesday in the first debt sale after a court rejection of some government austerity measures threatened to delay the country's full return to the bond market.
The IGCP debt agency sold all 1.75 billion euros (1.5 billion pounds) of Treasury bills on offer, including 1.5 billion euros in one-year bills and 250 million euros in 3-month paper, whose yield edged down from the previous auction.
The agency said the average yield on 12-month bills rose to 1.394 percent from 1.277 percent at the last auction of the same maturity in February while the yield on 3-month bills edged lower to 0.743 percent from 0.757 percent in March
"There is a little bit more caution as the constitutional court showed that there are bumps in the road for Portugal, that the austerity is getting more difficult to manage," said Orlando Green, debt strategist at Credit Agricole in London.
Demand outstripped the amount placed by 4.8 times on 3-month bills and 2.1 times on the longer maturity, the IGCP said.
The constitutional court threw out up to 1.3 billion euros worth of austerity measures out of 5 billion in this year's budget. The government has since promised to cut spending to plug the hole and meet fiscal goals under a European Union/International Monetary Fund bailout despite a steep economic recession.
Portuguese debt yields have dropped since the start of the year, helped by a five-year debt issue in January - Lisbon's first bond since its mid-2011 bailout.
The court ruling upset the government's fiscal plans threatening to delay Portugal's longer bond issue the IGCP has been working on to regain full access to market financing.
But the country's benchmark 10-year bond yields that spiked to around 6.7 percent after the court ruling have since slipped back to about 6.1 percent - not far from January's levels of 5.9 percent - the lowest since late 2010.
(Reporting By Andrei Khalip and Sergio Goncalves. Editing by Jeremy Gaunt.)