In a crucial test of its ability to roll over its burgeoning debt load, Portugal managed to sell 10-year bonds on Wednesday at a yield that came in somewhat lower than expected.

Portugal sold €599-million of bonds, due in 2020, at a yield of 6.716 per cent. That’s very slightly lower than the yield of a similar auction, in November, and somewhat lower than the yields on it existing 10-year bonds, which have closed above 7 per cent in recent days. The purchase of Portuguese bonds by the European Central Bank in recent days probably helped to drop the yields.

Still, economists consider yields approaching 7 per cent on long-term debt as unsustainable. The Lisbon government itself has admitted that yields that high could prove fatal to its financial health has implemented one of the euro zone’s most aggressive austerity programs to bring its budget deficit under control.

Portugal also sold €650-million of bonds, due in 2012, at a yield of 5.396 per cent, up substantially from the 4.041 per cent demanded by investors in October.

In spite of the successful long-bond sale, analysts and economists still expect Portugal to seek a bailout from the European Union and the International Monetary Fund, the sponsors of last year’s bailouts of the Greek and Irish economies. Economists at the Italian bank UniCredit have estimated that Portugal’s bailout costs would come to about €60-billion, the amount required to cover bond redemptions, fund budget deficits and stabilize the country’s shaky banking sector for the next three years.

The collective cost of the Greek and Irish bailouts is estimated at almost €200-billion.

In spite of the high price paid by Portugal to unload the new 10-year bonds, politicians urged investors not to write off the Portuguese economy, which has barely grown in the last decade, or its ability to repay its debts.

“Portugal is in the process of giving results that are better than what they said they would do and that will reassure investors,” French Finance Minister Christine Lagarde said Wednesday on French TV. “I hope they will stick to their commitments and more, and under these conditions investors will look kindly on Portuguese debt.”

Portugal is cutting government employment and social services and reducing civil servant wages by 5 per cent this year. It is also raising the value-added tax (VAT) by 2 percentage points, to a hefty 23 per cent. The government’s budget deficit target for 2011 is 4.6 per cent of gross domestic product, and 3 per cent 2012.

While the yield on the new Portuguese bonds came in lower than expected, the country will still struggle to sell bonds.. It must raise about €20-billion this year to fund its deficit and roll over its debt. The effort will be all the more difficult if, as expected, the austerity programs push Portugal back into recession. The economy grew slightly last year. The European Commission now expects it to contract by about 1 per cent in 2011.

On Thursday, Spain and Italy are due to sell up to €9-billion of debt between them. Economists consider those two sales a bigger test of the euro zone’s weakest economies to fund themselves.