Why is Portugal important? – BBH

By FXStreet Analysts at Brown Brothers Harriman explained that Portugal’s 10-year bond yield has almost 120 bp this year.

Key Quotes:

“It is one of the few eurozone members that still pay to borrow two-year money. There are two set of drivers. One set is country specific. These may matter only to current or prospective investors. The other set of considerations may have broader applicability. This means that even those without direct exposure may want to take note of developments in Portugal.

There are a few country-specific considerations that are worrisome. First, three of the four rating agencies that the ECB relies on rate Portugal just below investment grade. If the fourth rating agency, DBRS were to match the other rating agencies, it would have serious implications. Portuguese bonds would not longer qualify to be purchased under the ECB’s asset purchase program. In addition, it would also mean that Portugal banks could not use government bonds for collateral to borrow from the ECB as they currently do.

Prior to last year’s election, there were expectations that Portugal could regain its investment grade status. However, the election results …read more

Source:: FX Street