Portugal sovereign rating review today – RBC CM

Research Team at RBC Capital Markets, suggests that the DBRS are due to review Portugal’s sovereign debt rating today which is likely to be on the investors radar.

Key Quotes

“To recap, DBRS currently rate Portugal one notch above investment grade at BBB (low) with a stable outlook, which was affirmed at the end of April and are the only one of the four ratings agencies whose assessment the ECB uses to determine eligibility as investment grade that currently rates Portugal as such. Were DBRS to downgrade Portugal, it would mean that Portugal’s sovereign debt was rated sub-investment grade by all four ratings agencies.

The most immediate impact of that would be that it would no longer be eligible for purchase under the current rules of the ECB’s sovereign bond buying programme but which would also see Portuguese banks face higher costs of ECB funding. DBRS has warned since its last  review that pressure is growing on the Portuguese rating pushing the yield on Portugal’s debt higher with comments from chief economist in early October that Portugal was in a vicious cycle of high debt, low growth and stalling reforms causing yields to rise sharply though bonds subsequently rallied after the Portugal Finance Minister said his expectation following a meeting with DBRS was that they would keep their investment grade rating. On the same day as the DRRS decision, the Portuguese government is due to present its draft to parliament for approval.”