Portugal borrowing costs at new high

S&P cuts Portugal’s debt rating two notches to BBB and keeps it on negative watch The cost of Portuguese borrowing has risen to a new record on the bond markets after Standard & Poor’s downgraded the country’s debt overnight. The yield on 10-year Portuguese government bonds hit a new high above 8% on Friday morning. Following a downgrade by Fitch on Thursday, S&P cut Portugal’s debt rating by two notches to BBB and kept it on negative watch, warning it could lower the rating one notch further once the details of the European Union’s permanent bailout fund are unveiled. Markets shrugged off comments by Herman van Rompuy , the EU president, who said that European leaders gathered in Brussels had agreed a comprehensive package of economic measures, including a permanent bailout fund for the eurozone. Once it has been approved by national governments, the European stability mechanism will replace the existing temporary fund. “We will make sure that €500bn (£440bn) is available with triple-A status. We have agreed to ensure that the temporary facility has an effective lending capacity of €440bn. It will be in place in June,” said van Rompuy. He also stressed the importance of credible stress tests to strengthen the banking sector. European leaders have adopted the Euro Plus Pact to improve economic co-ordination, which will be joined by six countries that are not in the eurozone – Denmark, Poland, Latvia, Lithuania, Bulgaria and Romania. Portugal’s crisis intensified on Thursday when prime minister José Sócrates resigned after his minority Socialist government’s latest austerity measures were rejected by parliament. The country must refinance €4.5bn of debt in April, and is dangerously close to becoming the third eurozone state in six months to ask for a bailout. “Even Moody’s who downgraded Portugal two notches to A3 10 days ago may have to consider further moves,” said Gary Jenkins, head of fixed income research at Evolution Securities. “The factors that could push Portugal’s rating lower according to Moody’s are: First, the likely trend in interest rates the government has to pay to access capital markets; with five-year yields 70bps higher than they were 10 days ago this box is already ticked. Secondly, how successful the government is in achieving fiscal targets; there must be a big question mark next to this following the government losing the vote on further austerity measures, and thirdly, uncertainty over how much support the government has to provide to the banks. “The latter is to a large extent dependent upon the first two factors and will be adversely affected by the widening sovereign yields and political uncertainty. So it does not seem inconceivable that we see more rating action on Portugal over the coming days and as they slip closer to the tipping point of low triple B from S&P so it becomes more likely that they will have to request a bailout.” European debt crisis Europe Portugal Europe Julia Kollewe guardian.co.uk

Posted by on March 25, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.