Portugal slips into default territory - FT.com

Portugal is trading in default territory after investors offloaded the country’s bonds this week amid rising fears of contagion, hurting a government debt auction on Wednesday. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens’ debt.

Portuguese 10-year bond yields, which have an inverse relationship with prices, jumped to a new euro-era high of 14.40 per cent in London on Wednesday. Before the S&P two-notch downgrade late on Friday, yields were trading at 12.45 per cent.

Portugal on Wednesday sold €1.25bn of 11-month bills, €754m of six-month notes and €496m of three-month notes, lower than the €2bn to €2.5bn targeted by the government debt agency.

Portugal does not have a bond maturing until June, when €10bn is due for repayment. Its borrowing needs are also modest at €17.5bn. However, investors worry about Portugal’s painfully slow growth, which could impact on its ability to service its debts.

Many investors were forced to sell Portuguese bonds after Standard & Poor’s downgraded the country to junk on Friday. Other funds sold Portuguese debt after Lisbon was removed from Citigroup’s European Bond Index, which these investors track, because of its fall to junk status.

All three main credit rating agencies, S&P, Moody’s, and Fitch, rate Portugal as junk, below investment grade. In the eurozone, only Greece is also rated junk by all the agencies.

 
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