LISBON, Portugal (AP) -- Portugal sold its debt on financial markets Wednesday for the first time since it needed a bailout, collecting €2.5 billion ($3.3 billion) in an auction of five-year bonds that was a milestone for economic recovery efforts in Portugal and the wider eurozone.
Treasury secretary Maria Luis Albuquerque said Portugal will pay interest of 4.9 percent on the loan — an affordable rate and a sign of returning market confidence in Portugal. She said investors placed orders for more than €12 billion and 93 percent of the sold amount went to foreign buyers.
"This was clearly a significant step in the (bailout) program," Albuquerque told a news conference.
The sale was the latest sign that the 17-nation euro area is over the worst of its three-year financial crisis as borrowing costs have recently fallen in countries such as Spain and Italy, which were previously seen as risky investments due to their high debt burden.
Portugal was the third country, after Greece and Ireland, to fall victim to the eurozone's financial crisis when it required a €78 billion lifeline in May 2011 to avert bankruptcy. Investors were alarmed by Portugal's meager growth and high debt and worried they might not get their money back if they loaned it money. That forced Portugal to ask the European Central Bank, International Monetary Fund and its European partners for help.
The country's fiscal health has improved since it began enacting cutbacks and economic reforms demanded in return for the bailout. However, the austerity measures are widely blamed for a forecast third straight year of recession in 2013 and a jobless rate of 16.3 percent.
Albuquerque said the Treasury didn't sell more bonds Wednesday because it doesn't need the money. The sale aimed to take the measure of market confidence in Portugal after it received broad praise for its obedient compliance with the terms of its bailout agreement. The three-year bailout program initially saw Portugal returning to markets only in September this year.
The successful auction will give heart to European leaders as evidence that their recovery strategy is paying off as well as provide some valuable political capital for Portugal's coalition government, which is under severe pressure to ease its austerity program.
In another sign of progress, the Portuguese government said earlier this week it expects last year's budget deficit to be lower than the targeted 5 percent. In 2010, the deficit was 10.1 percent.
Portugal is currently paying just over 3 percent in a variable interest rate for the bailout loan, according to the finance ministry.
Portuguese bonds are still classified as "junk" by the three main rating agencies, which downgraded them in 2011. But the yield on Portuguese 10-year bonds, viewed as a key indicator of market sentiment, fell below 6 percent this week for the first time in two years after peaking at 17 percent at the height of the Portuguese crisis. European economic powerhouse Germany's 10-year bonds are at 1.6 percent.
The sale could help qualify Portugal for the European Central Bank's bond-buying program, which was announced last year and is credited with helping quell the eurozone's financial crisis. Under the program, known as Outright Monetary Transactions, the ECB would buy a country's bonds to keep its borrowing costs at a manageable level. Selling national debt on the open market is one of the conditions to qualify for the program which could help Portugal rebound next year when the rescue funds run out.
The eurozone's finance ministers on Monday agreed in principle to extend maturities on some of Portugal's debt, easing its repayment burden and freeing up cash to spend on fostering growth.
Portuguese bankers welcomed the auction and the falling interest rates, saying the knock-on effect of lower borrowing costs will allow them to lend more to businesses. That could be crucial as Portugal struggles to get traction amid a broader European economic slowdown.
Portugal still has a mountain to climb. Public debt surpassed 120 percent of Portugal's gross domestic product in the third quarter of last year, when it was the third-highest in the European Union. State-owned companies have total debts of more than €30 billion, according to the latest figures.
Also, the financial market success stands in stark contrast to the hardship being endured by many Portuguese. The austerity measures have brought numerous strikes and street protests.