Portugal will accept a financial bailout “within the next few weeks” as the cost of issuing debt becomes unsustainable, said Axa Investment Managers, which oversees $714 billion in assets.

“The borrowing costs are just too high” for Portugal, Christopher Iggo, London-based chief investment officer for fixed income at Axa, France’s fourth-largest fund manager, said in a telephone interview two days ago. “Ireland and Greece had to go for a bailout once their borrowing costs got that high, so I fully expect Portugal to go within the next few weeks.”

Portugal’s 10-year bond yield reached 7.64 percent on Feb. 10, the most since the inception of the euro in 1999, and was at 7.47 percent as of 2:10 p.m. in London. It first climbed above 7 percent on Nov. 10 and has been above that level since Feb. 4. Greece needed a rescue within 17 days of its 10-year yield breaching 7 percent on April 6, while Ireland lasted less than a month after it cracked that level in October.

Axa Investment Managers, a unit of France’s largest insurer Axa SA, has avoided the bonds of the euro-region’s most-indebted countries and has increased holdings of German, French, Austrian, Dutch and Finnish government securities over the last year, Iggo said.

Portugal is raising taxes and implementing the deepest spending cuts in more than three decades to convince investors it can narrow its budget gap and avoid a rescue.

Standard & Poor’s said today that the Iberian nation’s debt rating remains at risk of being cut, citing the country’s “high external financing need and limited funding sources.”

Portuguese Prime Minister Jose Socrates meets German Chancellor Angela Merkel in Berlin today to discuss how the European Financial Stability Facility, or the mechanism that will succeed it, may be used to more effectively help countries in difficulty.

European Union leaders have given themselves until a March 24-25 summit to craft what German Chancellor Angela Merkel has called a “comprehensive” package to address the sovereign debt crisis that has roiled the euro-region.

“The important thing is to put in place a robust mechanism and, longer term, to provide a framework that prevents countries getting into fiscal problems,” Iggo said. Offering Portugal a similar aid deal to the ones given to Greece and Ireland would be “quite neat,” because it would allow EU leaders to tie up any loose ends by the end of March, he said.

Portugal’s economy will shrink by almost 1 percent this year, according to the median estimate of six economists surveyed by Bloomberg, after shrinking 2.5 percent in 2009 and growing 1.4 percent last year.

The country will report a 2010 deficit equivalent to 7.3 percent of gross domestic product, according to a separate survey. The deficit amounted to 9.3 percent of gross domestic product in 2009, the fourth biggest in the euro area after Ireland, Greece and Spain.

The response to the debt crisis must be on a European scale, Socrates said on Feb. 28 at a conference in Lisbon broadcast by Radio TSF. “The problem is systemic,” he said

Spain has the highest borrowing costs in the European Union after Greece, Ireland and Portugal with its 10-year yield at 5.35 percent today.

“Spain is the interesting one,” Iggo said. “We are reasonably confident Spain will be able to pull through but we need to see what the announcement at the end of March will be like.”

Axa Investment Managers is the fourth-largest French asset manager after Amundi Asset Management with 689.5 billion euros ($950 billion) under management, BNP Paribas Investment Partners with 546 billion euros and Natixis Asset Management with 538 billion euros, as of the end of 2010, according to data compiled by Bloomberg. 

(Bloomberg)