PARIS — Moody’s Investors Service downgraded its rating on Portuguese debt for a second time in less than a month Tuesday, warning that the country’s next government would have to turn to its European partners for aid “as a matter of urgency.”
The agency cut its rating on Portugal’s long-term bonds by one notch, to Baa1 from A3, and placed the country on review for another downgrade. The ratings have been cut several times since the government collapsed last month, after a failure to pass a new round of austerity measures.
If Moody’s cuts Lisbon’s rating a further three levels to Ba1, then its bonds would be considered junk by that agency. SP has already cut Portugal’s rating to BBB-, which is just one notch above junk.
The country has about €9 billion, or $13 billion, of bond redemptions falling due in April and June and investors doubt its ability to meet those payments without help from its European partners or the International Monetary Fund. On Friday it sold €1.65 billion of short-term bills in what was seen as a stop-gap measure.
Yields on Portuguese bonds pushed higher Tuesday, with the benchmark 10-year at 8.43 percent and the 2-year and 8.6 percent, making the country’s debt significantly more risky to investors than that of Indonesia or India. Portuguese officials have conceded that the country cannot sustain paying 7 percent or more for long.
Elsewhere in markets, oil prices remained elevated but off their intra-day highs. In London, Brent crude oil for June delivery stood at $120.26, down 38 cents a barrel. Stocks in Europe were down slightly.
Moody’s said Lisbon faces a range of difficulties, including the upcoming general election on June 5, rising interest rates and a limited window for repaying existing obligations, which increase the risk that Portugal will be unable to achieve the outgoing government’s ambitious deficit reduction targets over the coming three years and put the public finances into shape.
According to the Portuguese news reports, the caretaker government and European officials are evaluating the possibility of Portugal obtaining a short-term loan from the Union to cover remaining funding needs until the new government is formed.
Moody’s said the next government was likely to approach its European partners for financial help “as a matter of urgency.”
“It is very unlikely that the long-term debt markets will reopen to the Portuguese government or to the Portuguese banks to any meaningful extent until the government is able to take action to dispel doubts over its commitment and ability to implement the fiscal program,” Moody’s said.
Article source: http://www.nytimes.com/2011/04/06/business/global/06euro.html?partner=rss&emc=rss
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