Portugal’s long-term government bond rating was removed from “creditwatch” by Standard & Poor’s, reducing the risk of a downgrade, as the country sticks to a European Union-led bailout program.
“In our view, the coalition government remains committed” to the program, S&P said in a statement today.
The agency will keep a negative outlook on the country’s BB rating, “reflecting what we view as ongoing social and political risks associated with deleveraging efforts by Portugal’s highly indebted private and public sectors, as well as financing uncertainties related to Portugal’s exit” from the bailout, expected in May.
S&P had put the country’s ratings on “creditwatch” with a negative outlook on Sept. 18. Portugal’s debt is also rated junk by Moody’s Investors Service and Fitch Ratings.
Portugal is trying to regain full access to debt markets as the end of its 78 billion-euro ($106 billion) rescue program from the EU and International Monetary Fund is approaching.
The country sold 3.25 billion euros of five-year notes through banks last week in the first offering of coupon-bearing debt in eight months as signs of economic recovery spur a rally in the region’s higher-yielding fixed-income assets.
“Stronger-than-expected export performance, and an expected bottoming-out of private consumption, amid a modest decline in unemployment, should support Portugal’s fiscal performance in 2014,” S&P said.
Trim Spending
While Portugal emerged from its longest recession in at least 25 years in the second quarter, Prime Minister Pedro Passos Coelho still has to trim spending by 3.2 billion euros this year to meet targets in its EU-led aid plan after relying mostly on tax increases in 2013.
The government set a target for a budget deficit of 5.5 percent of gross domestic product in 2013 and 4 percent in 2014. It forecasts the shortfall will fall below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap.
The government projects that debt peaked at 127.8 percent of GDP in 2013. “Portugal should achieve its fiscal targets of 5.5 percent of GDP in 2013 and approach its 4 percent target in 2014,” S&P said.
“We base this expectation partly on indications that the economy has been showing signs of stabilization since mid-2013, after 10 consecutive quarters of contraction.”
Bond Spreads
The extra yield investors demand to hold Portugal’s 10-year bonds instead of German bunds narrowed this week to 3.3 percentage points, the lowest in three years. It reached a euro-era record of 16 percentage points in January 2012.
Borrowing costs fell to the lowest since the start of Europe’s sovereign debt crisis in 2009 at an auction of 1.01 billion euros of 12-month bills on Jan. 15 that attracted the strongest demand since February.
Portugal plans gross bond issuance of between 11 billion euros and 13 billion euros this year, and the debt agency on Jan. 15 said it expects to reintroduce bond auctions in the first half of this year.
Portugal is seeking to exit its bailout without needing another rescue and held a 6.64 billion-euro debt exchange on Dec. 3 to push back repayments on securities maturing in 2014 and 2015 into 2017 and 2018. Bond markets often disregard rating and outlook changes.
France’s 10-year yield, which was 3.08 percent when S&P removed its top rating in January 2012, tumbled to a record-low 1.66 percent last year.
From the start of this year, Fitch, Moody’s, S&P and DBRS Inc. had to release announcement schedules for rating decisions under EU rules introduced in the wake of the region’s debt crisis.
Assessors will be restricted to three judgments per year on sovereign borrowers that haven’t asked or paid for a grade, and will need to review ratings at least every six months.
bloomberg.com
“In our view, the coalition government remains committed” to the program, S&P said in a statement today.
The agency will keep a negative outlook on the country’s BB rating, “reflecting what we view as ongoing social and political risks associated with deleveraging efforts by Portugal’s highly indebted private and public sectors, as well as financing uncertainties related to Portugal’s exit” from the bailout, expected in May.
S&P had put the country’s ratings on “creditwatch” with a negative outlook on Sept. 18. Portugal’s debt is also rated junk by Moody’s Investors Service and Fitch Ratings.
Portugal is trying to regain full access to debt markets as the end of its 78 billion-euro ($106 billion) rescue program from the EU and International Monetary Fund is approaching.
The country sold 3.25 billion euros of five-year notes through banks last week in the first offering of coupon-bearing debt in eight months as signs of economic recovery spur a rally in the region’s higher-yielding fixed-income assets.
“Stronger-than-expected export performance, and an expected bottoming-out of private consumption, amid a modest decline in unemployment, should support Portugal’s fiscal performance in 2014,” S&P said.
Trim Spending
While Portugal emerged from its longest recession in at least 25 years in the second quarter, Prime Minister Pedro Passos Coelho still has to trim spending by 3.2 billion euros this year to meet targets in its EU-led aid plan after relying mostly on tax increases in 2013.
The government set a target for a budget deficit of 5.5 percent of gross domestic product in 2013 and 4 percent in 2014. It forecasts the shortfall will fall below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap.
The government projects that debt peaked at 127.8 percent of GDP in 2013. “Portugal should achieve its fiscal targets of 5.5 percent of GDP in 2013 and approach its 4 percent target in 2014,” S&P said.
“We base this expectation partly on indications that the economy has been showing signs of stabilization since mid-2013, after 10 consecutive quarters of contraction.”
Bond Spreads
The extra yield investors demand to hold Portugal’s 10-year bonds instead of German bunds narrowed this week to 3.3 percentage points, the lowest in three years. It reached a euro-era record of 16 percentage points in January 2012.
Borrowing costs fell to the lowest since the start of Europe’s sovereign debt crisis in 2009 at an auction of 1.01 billion euros of 12-month bills on Jan. 15 that attracted the strongest demand since February.
Portugal plans gross bond issuance of between 11 billion euros and 13 billion euros this year, and the debt agency on Jan. 15 said it expects to reintroduce bond auctions in the first half of this year.
Portugal is seeking to exit its bailout without needing another rescue and held a 6.64 billion-euro debt exchange on Dec. 3 to push back repayments on securities maturing in 2014 and 2015 into 2017 and 2018. Bond markets often disregard rating and outlook changes.
France’s 10-year yield, which was 3.08 percent when S&P removed its top rating in January 2012, tumbled to a record-low 1.66 percent last year.
From the start of this year, Fitch, Moody’s, S&P and DBRS Inc. had to release announcement schedules for rating decisions under EU rules introduced in the wake of the region’s debt crisis.
Assessors will be restricted to three judgments per year on sovereign borrowers that haven’t asked or paid for a grade, and will need to review ratings at least every six months.
bloomberg.com
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