Wednesday, March 16, 2011

Moody's Cuts Portugese Sovereign Debt Rating Two Notches

The ratings agency has already knocked Grecian goverment debt into junk territory, but today it downgraded Portugese sovereign debt down two notches to A3 from A1. That's quite close to the Bs.
Economists said the downgrade wasn’t a surprise as it puts Moody’s rating in line with Standard & Poor’s take on Portugal. Both agencies have negative outlooks on the rating.

But the cut comes amid a clash over the Portuguese government’s effort to impose a further round of austerity measures, fueling long-running speculation that slow growth and rising borrowing costs will eventually leave Lisbon with little choice but to seek assistance from the European Union and International Monetary Fund.
Two year sovereign notes now yield 8%. The reason given for the downgrade was poor growth prospects and the minority government's difficulty in enacting its latest austerity package. The main opposition party has already turned the thumb down on the package.

This announcement did little for the metal this morning, like other items that would normally have a positive effect on gold. They might, however, have clipped off a further fall that otherwise would have taken place. Although not explicitly bullish, this downgrade does remind the gold market that the Eurocrisis is still ticking over.


  1. With the current Japanese tragedy heightening risk aversion in the markets, there would be little chance that ECB will raise rates in the short run. Spain the least exposed to the debt problems in the PIGS category. At govt yield of 4.2%, they seem to be able to make it out of the crisis in whole.

    European outlook:Intrinsic Value

  2. Good points; thanks for them. It would be harder for the ECB to raise its rate in this environment.