Portugal’s sovereign debt surpasses the 9% barrier for the first time

Portugal’s sovereign debt surpasses the 9% barrier for the first time

  • The 5-year Portuguese bonds reached the highest interest since the accession to the euro.
  • The latest cuts by risk rating agencies and the open political crisis following the Prime Minister’s resignation have contributed to this increase.
  • Portugal must face the payment of 9,000 million euros due to the expiration of several lines of debt.

Prince Charles of England (left) talks to Portugal’s Prime Minister José Sócrates at the Sao Bento Palace in Lisbon (Portugal). REUTERS

The interests that penalize the sovereign debt of Portugal continued in the same ascending line one more day and in the case of the Portuguese bonds to five years they surpassed this Wednesday for the first time the barrier of 9% .

Market sources attributed this increase to the latest cuts by risk rating agencies, to the political crisis opened after the resignation of Prime Minister José Sócrates and the worsening of economic forecasts for 2011 .

The profitability demanded by investors in the secondary market to repurchase Portuguese bonds continues unchecked, which hurts the country’s options to overcome the crisis autonomously and without resorting to foreign aid .

The Portuguese bonds to five years quoted this Wednesday to 9,040% Portugal, in addition, must face the payment of about 9,000 million euros due to the expiration in April and June of several lines of debt , which in practice forces it to continue going to issue securities in the primary market to achieve liquidity.

The five-year Portuguese bonds traded at 9,040% on Wednesday, the highest interest since joining the euro in 1999; while these same 10-year obligations are already above 8% after 38 consecutive days above 7%.

These rates are hardly sustainable , according to analysts, and reflect the high degree of uncertainty among investors, whose confidence that the country will fulfill its promise to reduce the public deficit by 2.7 points this year (up to 4, 6% of GDP) has fallen due to the context of political instability in Portugal.

Early elections?

The situation of political “impass” that exists since the resignation of the prime minister leaves open the possibility of early elections , a decision that should be taken by the President of the Republic, the conservative Aníbal Cavaco Silva.

At this juncture, Socialists, the Government, and Social Democrats, the main opposition group, exchanged harsh accusations on Tuesday, blaming each other for having contributed to the worsening of this crisis.

Standard & Poor’s has lowered sovereign debt to leave it at “BBB-“ The pressure on Portugal has only increased in recent days, with several cuts by financial rating agencies Fitch and Standard & Poor’s included.

Especially hard has been the position of Standard & Poor’s, which in just five days downgraded twice the sovereign debt lusa to leave it in “BBB-“, a single step of the consideration of “junk bond” indicating the ” BB + “.

The risk of default remains very low

Analysts at the agency, however, said on Tuesday that the risk of default , “default”, remains very low , so they think “exaggerated” the pressure to which they submit to Portugal markets.

Neither helped to clear the doubts of investors about the economic situation of the Portuguese country the publication of the latest forecasts of the Bank of Portugal, which point for 2011 to a GDP drop of 1.4%, one tenth worse than in their previous estimates , and an inflation of 3.6%.