S&P slashes Portugal’s credit rating
Portugal’s borrowing costs hit record levels after S&P cuts its credit rating to the brink of junk status
Portugal’s financial woes deepened on Tuesday as its borrowing costs rose to record levels after the ratings agency Standard & Poor’s (S&P) cut its rating to the brink of “junk” status.
Gary Jenkins, head of fixed income research at brokers Evolution, said the cut in the rating to BBB- “raised the probability” that the country would be forced to accept a bailout.
“This is one false step from being junked,” said Jenkins. “It’s very unlikely the market will be prepared to fund Portugal anytime soon.”
Portugal has a debt repayment due on 15 April and another in June. But the price the market is likely to demand from Portugal to raise fresh funds is expected to be too high for the country to finance itself without external assistance.
Yields – interest rates – on two-year bond hit a new high of 7.69% on Tuesday, while yields on 10-year bonds were at a record, and edging closer to 8.2%. Any price above 7% is regarded as unsustainable by analysts.
S&P said it was cutting the sovereign credit ratings on Portugal by one notch to BBB- and putting the country’s outlook on “negative” because of the problems it would face in financing itself. The BBB- rating is one notch above junk – and the further the country falls towards junk the higher its borrowing costs will be.
S&P’s BBB- rating is much lower than Moody’s A3 and Fitch Ratings’ A-.
S&P said that it felt likely that Portugal, whose prime minister José Sócrates resigned last week when the parliament failed to pass the austerity budget, would need assistance from the European financial stability facility (EFSF) and the European stability mechanism (ESM).
“Given Portugal’s weakened capital market access and its likely considerable external financing needs in the next few years, it is our view that Portugal will likely access the EFSF and thereafter the ESM,” S&P said.
“The negative outlook reflects our view that the macroeconomic environment could weaken beyond our current expectations and that a political impasse could undermine the effective implementation of Portugal’s adjustment programme, leading to non-negligible policy slippages,” the agency added.
“[We] assume that a new government will be formed by the end of the second quarter of 2011. We expect the next government will agree to further fiscal and structural reforms as part of an EU/IMF program.” Ratings agencies Portugal European debt crisis Financial sector Economics Global economy Europe Europe Jill Treanor guardian.co.uk © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds
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