Portugal reels after Moody's junk rating
July 7, 2011 - 1:44AM
News.TheAge.com
AFP
Bailed-out Portugal paid an immediate price on Wednesday for a drastic Moody's rating downgrade to junk status, having to offer investors a much higher rate of return to raise fresh funding.
Dropped four notches to Ba2, Lisbon found itself on the defensive in the markets as rattled investors demanded more for their money, with the new government's tough austerity program forgotten quickly in the crossfire.
Portugal did manage to raise 848 million euros ($A1.15 billion) for three months at a yield, or rate of return, of 4.926 per cent, but this was up from the 4.863 paid at a similar sale on June 15.
Worse still, the yield on its benchmark 10-year bond soared above 12 per cent for the first time ever, and compared with 10.755 per cent late Tuesday as the downgrade sparked fresh nerves about the whole eurozone debt crisis.
"The sale was clearly affected by this decision and investors ended up demanding higher interest when, in the last ten days, short-term rates had fallen," Filipe Silva, fixed-income strategist at Carregosa bank said.
Moody's said its downgrade reflected "the growing risk that Portugal will require a second round of official financing before it can return to the private market (to raise funds)."
In other words, it did not believe that a first bailout of 78 billion euros ($A105.86 billion) agreed with the European Union and International Monetary Fund earlier this year would stabilise Portugal's public finances.
Full article: http://news.theage.com.au/breaking-news-world/portugal-reels-after-moodys-junk-rating-20110707-1h2yn.html
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