By Serena Ruffoni and Art Patnaude 
 

Banco Espirito Santo SA (BES.LB) Wednesday was attempting to become the first Portuguese bank to sell new debt that isn't backed by the government since 2010, as improved sentiment across the euro zone over the last two months has brought its borrowing costs down substantially.

BES, the only lender in the country that hasn't taken direct government aid, planned to sell at least 500 million euros ($646.8 million) worth of three-year, senior-unsecured bonds, a banker working on the sale said.

The deal marks the emergence of a Portuguese bank into public debt markets after a more than two-year hiatus. Investors became wary of banks and companies in Portugal at the start of the euro-zone sovereign-debt crisis. Portugal requested an international bailout in April 2011.

Banco Comercial Portugues SA (BCP.LB) was the last Portuguese bank to sell senior unsecured bonds, a type of debt backed solely by a bank's credit worthiness, in March 2010.

"It's a big positive for Portuguese banks trying to break themselves away from European Central Bank funding," said Jean-Luc Lepreux, senior bank analyst at Societe Generale.

Borrowing costs across the euro zone have collapsed over the last two months. A pledge from the ECB to buy sovereign bonds from countries that request aid kicked off the rally in early September. The removal of worries about Spain getting downgraded to junk status gave a further lift in October, when Moody's Investors Service kept the country's debt rating at investment grade.

Looking at the BES's credit default swaps, which gauge investors opinion on the likelihood of a bank defaulting on its debt, the shift since summer has been significant. The five-year CDS of BES were at 466 basis points Wednesday, less than half the level in early June, according to Markit data.

BES initially proposed a yield of 6.25% for its new bonds, with the pricing to be firmed up during the day. The Portuguese two-year government bond is yielding 4.6%, according to Tradeweb, while the five-year is yielding 6.1%.

"If any Portuguese bank was able to propose a bond deal to the market, it's Banco Espirito Santo," said Mr. Lepreux at Societe Generale, reiterating the bank was able to raise equity in the market from private investors without government intervention.

The recent improvement in tone has also encouraged Portuguese companies to tap international bond investors. Portugal Telecom SGPS SA (PT) sold EUR750 million worth of 5.5-year bonds earlier this month, while highway systems operator Brisa Concessao Rodoviaria SA (BRI.LB) and Energy company Energias de Portugal SA (EDP.LB) sold debt in September.

JPMorgan, Morgan Stanley, UBS and Banco Espirito Santo are lead managers on the BES bond. BES is rated in junk territory, with a Ba3 from Moody's Investors Service Inc. and BB- from Standard & Poor's.

Write to Art Patnaude at art.patnaude@dowjones.com