PORTUGAL COULD require a second, Greek-style bail-out involving private investors, Moody’s rating agency has warned as it downgraded the country to “junk” on fears it will struggle to meet its current targets and will remain unable to borrow from the bond markets for some time.
Moody’s Investors Service downgraded Portugal by four notches to Ba2 from Baa1 – equivalent to double B from triple B plus at other agencies – and warned of the “increasing probability” that Portugal would not be able to tap the markets at sustainable rates for some time after 2013. The agency left in place its negative outlook, signalling further downgrades were possible.
The euro dropped to $1.4404 against the dollar on the news, down 0.9 per cent on the day, from $1.4480. US equities slipped with the SP 500 down 0.2 per cent. Treasury bond yields dropped to their lows for the day, with the 10-year note yielding 3.12 per cent, down 7 basis points.
“This is a reminder to the markets that the problems are wider than Greece,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “In a dysfunctional family, it’s easy to blame all the problems on one person – Greece in this case – and think if you solve their issues, then we’ll be fine. But that ain’t the case.” – (Copyright The Financial Times Limited 2011)
