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Moody's Downgrades Portugal To Ba2 From Baa1, Outlook Negative

Tyler Durden's picture


And heeeeeere's Moody's to dump on today's no volume levitation and push Portugal further into junk.

Moody's Investors Service has today downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody's has also downgraded the government's short-term debt rating to (P) Not-Prime from (P) Prime-2. Today's rating action concludes the review of Portugal's ratings initiated on 5 April 2011.
The following drivers prompted Moody's decision to downgrade and assign a negative outlook:
1. The growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition.
2. Heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union (EU) and International Monetary Fund
(IMF) due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.
The first driver informing today's downgrade of Portugal's sovereign rating is the increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of
2013 and for some time thereafter. Such a scenario would necessitate further rounds of official financing, and this may require the participation of existing investors in proportion to the size of their holdings of debt that will become due.
Moody's notes that European policymakers have grown increasingly concerned about the shifting of Greek debt held by private investors onto the balance sheets of the official sector. Should a Greek restructuring become necessary at some future date, a shift from private to public financing would imply that an increasingly large share of the cost would need to be borne by public sector creditors. To offset this risk, some policymakers have proposed that private sector participation should be a precondition for additional rounds of official lending to Greece.
Although Portugal's Ba2 rating indicates a much lower risk of restructuring than Greece's Caa1 rating, the EU's evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms.
The second driver of today's rating action is Moody's concern that Portugal will not achieve the deficit reduction target -- to 3% by 2013 from 9.1% last year as projected in the EU-IMF programme -- due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. As a result, the country may be unable to stabilise its debt/GDP ratio by 2013. Specifically, Moody's is concerned about the following sources of risk to the budget deficit projections:
1) The government's plans to restrain its spending may prove difficult to implement in full in sectors such as healthcare, state-owned enterprises and regional and local governments.
2) The government's plans to improve tax compliance (and, hence, generate the projected additional revenues) within the timeframe of the loan programme and, in combination with the factor above, may hinder the authorities' ability to reduce the budget deficit as targeted.
3) Economic growth may turn out to be weaker than expected, which would compromise the government's deficit reduction targets. Moreover, the anticipated fiscal consolidation and bank deleveraging would further exacerbate this. Consensus growth forecasts for the country have been revised downwards following the EU/IMF loan agreement. Even after these downward revisions, Moody's believes the risks to economic growth remain skewed to the downside.
4) There is a non-negligible possibility that Portugal's banking sector will require support beyond what is currently envisaged in the EU/IMF loan agreement. Any capital infusion into the banking system from the government would add additional debt to its balance sheet.
Moody's acknowledges that its earlier concerns about political uncertainty within Portugal itself have been largely resolved. Portugal's national elections on 5 June led to the formation of a viable government, both components of which had campaigned on the basis of supporting the EU-IMF loan agreement negotiated by the previous government. Moody's also acknowledges the policy initiatives announced at the end of June demonstrate the new Portuguese government's commitment to the programme.

However, the downside risks (as detailed above) are such that Moody's now considers the government long-term bond rating to be more appropriately positioned at Ba2. The negative outlook reflects the implementation risks associated with the government's ambitious plans.

Developments that could stabilise the outlook or lead to an upgrade would be a reduction in the likelihood that private sector participation might be required as precondition for future rounds of official support or evidence that Portugal is likely to achieve or exceed its deficit reduction targets.
A further downgrade could be triggered by a significant slippage in the execution of the government's fiscal consolidation programme, a further downward revision of the country's economic growth prospects or an increased risk that further support requires private sector participation.


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Tue, 07/05/2011 - 14:07 | 1427160 Thomas
Thomas's picture

Domino theory.

Tue, 07/05/2011 - 14:10 | 1427172 French Frog
French Frog's picture

I reckon that this is no more than the rating agencies looking all tough now so that later they can avoid calling the french-proposed greek debt consolidation a default

Tue, 07/05/2011 - 14:14 | 1427199 Ahmeexnal
Ahmeexnal's picture

Take out your Fado recordings. A french naval vessel is already on it's way to plunder the portu-geese gold.

We are witnessing the chronicles of an announced european armed conflict.

Tue, 07/05/2011 - 15:23 | 1427425 Sudden Debt
Sudden Debt's picture



They'll just cranck up that industrial base and produce TWICE as much of... euuuhhh... mmmmm.... dddaaaaa........





Tue, 07/05/2011 - 14:09 | 1427164 devilsindetails
devilsindetails's picture

stupid rating agencies brought me flat for day.... so they couldnt downgrade the banks in 2008 but here they are downgrading countries

Tue, 07/05/2011 - 14:11 | 1427182 Popo
Popo's picture

Wait ... are you really here looking for sympathy that your bullish bets aren't playing out?

Tue, 07/05/2011 - 14:15 | 1427204 HelluvaEngineer
HelluvaEngineer's picture

He was here for the ruler chart, apparently

Tue, 07/05/2011 - 14:22 | 1427231 devilsindetails
devilsindetails's picture

yea.... that's exactly why i'm here for....

Tue, 07/05/2011 - 15:12 | 1427398 SheepDog-One
SheepDog-One's picture

I dont feel sorry for anyone losing on their bullish bets, but good point about the rating agencies focused like a laser beam on Europe banks, however NEVER saw a bit of trouble at all before the big US bank collapse of '08.

Tue, 07/05/2011 - 16:16 | 1427574 Doeko
Doeko's picture

My sympathies. I'm slightly down as well for the day. They really managed to sneak it on the wires down to the minute where the S&P500 was trying to make a new high. We'll get there some day soon. 

Well, if the S&P500 wants to make a new high it's gonna make a new high. Rating agencies be damned. And yeah, I don't understand why anybody at all listens to those idiots. They have about as much chance as correctly predicting things as a monkey. However, they have one advantage in that they can create a self-fulfilling prophecy, which of course needs to be faded. Subprime and CDO were a self-fulfilling prophecy temporarily until the idea that they were safe burst and the PIIGS are also a self-fulfilling prophecy temporarily until the idea that they are very very dangerous is going to pop.

Oh hey look, seems like the spooz are trying to a new day high b4 the futures close :D :D

Edit: Well there you have it, new day high print at 1337 (and 4 wk high) into the close. Wouldn't want all those noobs actually trading stocks to get in on the goodness I guess. :/ 

Tue, 07/05/2011 - 14:08 | 1427168 TradingJoe
TradingJoe's picture

So far "Mr Market" is not impressed!

Tue, 07/05/2011 - 14:16 | 1427209 nope-1004
nope-1004's picture

"Mr. Market" is the one that told Moody's to downgrade Portugal, then will tell the public "we have a strong dollar policy" as the USD rallies slightly, all in the name of setting the stage for QE3.


No, just fascism.


Tue, 07/05/2011 - 14:46 | 1427321 SeverinSlade
SeverinSlade's picture

Nailed it.

The only way you can make the dollar look good is by making everything else look bad. 

Bernanke wouldn't be able to convince anyone to go along with QE3 with the DXY around 74.  But if we have a bump up over 80+ and the stock market crashing, QE3 passage will be easy.

Tue, 07/05/2011 - 15:13 | 1427401 SheepDog-One
SheepDog-One's picture

OK so how long does that technique work for, make everyone else look bad and us good when we want to, then making us look bad and everyone else bad when desired such as for a QE. When do other countries in the world band together and say 'enough of your mukstering USA'

Tue, 07/05/2011 - 15:56 | 1427537 MachoMan
MachoMan's picture

The agreement has already been forged in general terms...  the dollar appreciates for a little while and everyone gets a share of the funny money/power/seat at the central table the next time around/in the end.  Think of it like two kids on a hand car, barrelling down a dead end track.

Tue, 07/05/2011 - 14:10 | 1427174 Cassandra Syndrome
Cassandra Syndrome's picture

Moody's and S & P are officially on my cool list. Never thought I would see the day.

Tue, 07/05/2011 - 14:10 | 1427176 Xibalba
Xibalba's picture

too bad everyone's at the beach.  

Tue, 07/05/2011 - 14:10 | 1427178 rubearish10
rubearish10's picture

The Euro has no business being in business. Such a face but credit t the agencies for rejected more bribes.

Tue, 07/05/2011 - 14:12 | 1427186 camoes
camoes's picture

So how's the dollar, pound, yen, etc any better?

Tue, 07/05/2011 - 14:25 | 1427239 rubearish10
rubearish10's picture

All fiat has class, integrity and financial equality issues. Just pointing out the biggest lynch pin for our current fiasco in world markets.

Tue, 07/05/2011 - 16:03 | 1427555 Sudden Debt
Sudden Debt's picture

You can still buy silver with every single one of them.


Tue, 07/05/2011 - 14:10 | 1427180 camoes
camoes's picture

Filhos das putas!

Tue, 07/05/2011 - 14:11 | 1427183 oogs66
oogs66's picture

they can really tell the difference between Ba2 and Ba1? 

Tue, 07/05/2011 - 14:13 | 1427193 camoes
camoes's picture

It can change the margin requirements for the asset and some funds may not be allowed to hold it for regulatory and/or rules, so yes in financial la-la-land it alters reality

Tue, 07/05/2011 - 15:14 | 1427406 SheepDog-One
SheepDog-One's picture

Its like the difference between a turd sandwich, and a turd sandwich with BBQ sauce.

Tue, 07/05/2011 - 14:12 | 1427187 treemagnet
treemagnet's picture

How bad does it gotta be before these inbred rating agencies bite those that feed them?

Tue, 07/05/2011 - 14:14 | 1427196 Sandy15
Sandy15's picture

We are headed for a Depression and they can't stop it.  I guess as we get closer to the Depression, The Bernack will pump the market up higher and higher........100 pts to 170 pts every day even before a long weekend!!!!!!  yiiiiiipppppppeeeeeeee here we go  biggest bubble of all bubbles...................

Tue, 07/05/2011 - 14:14 | 1427198 monopoly
monopoly's picture

Oil moving back up  to 97, AGU POT on fire. Gold, silver up a bunch. Now, all we need is for interest rates to continue to spike up and they will finally indict The Bernank for being a Russian plant. Patience, as always.

Tue, 07/05/2011 - 14:16 | 1427210 Sandy15
Sandy15's picture

Because the printing press will start again!!

Tue, 07/05/2011 - 14:22 | 1427224 Quintus
Quintus's picture

How can it not?  Unless Timmy's big plan, now that QE2 is more or less over, is to leave all his treasury issues under his pillow each night and hope that the Debt Fairy will have bought them all while he slept and left a huge pile of dollars there instead.  Seriously, WTF has the readies to soak up $10 Trillion in debt over the next few years - and even that figure is based on a heavy dose of Hopium vis-a-vis future economic growth??

Tue, 07/05/2011 - 15:16 | 1427409 SheepDog-One
SheepDog-One's picture

Next theyll grab $4 trillion worth of publics 401K's and pensions, book it.

Tue, 07/05/2011 - 14:16 | 1427213 A Man without Q...
A Man without Qualities's picture

That's a 4 notch downgrade - absolutely brutal, must have been some harsh words spoken between S&P and the Germans...

Tue, 07/05/2011 - 14:20 | 1427223 alien-IQ
alien-IQ's picture

oh, I find it hard to believe that this market is going to let a little thing like insolvent nations, banks or businesses keep it from reaching it's goal of DOW 36K. Just look at BIDU. Heading back into triple digit PE land with no end in sight. After all, who wouldn't want to chase a Chinese internet company with a triple digit PE and about as much transparency as a glory hole? What can possibly go wrong?

Tue, 07/05/2011 - 16:03 | 1427556 scatterbrains
scatterbrains's picture

diffinetly a concern.. your mind is telling you your down some girls wet throat but in reality  your probabaly up in some man's hiv infected ass ew.

Tue, 07/05/2011 - 14:21 | 1427226 kito
kito's picture

funny how this vicious cycle of imf- world bank brutality and heavy-handedness has finally been cast off the shores of south america only to make its way back to europe. who would have thought that the south american nations, finally free of the shackles of these leech organizations, would be better off today than many countries in the "indomitable" eu, who now find themselves slaves to the monsters they helped create. 

Tue, 07/05/2011 - 14:23 | 1427230 YesWeKahn
YesWeKahn's picture

There is no POMO today, the PPT has to invent something new to make the rally permanent.

Tue, 07/05/2011 - 15:34 | 1427477 SheepDog-One
SheepDog-One's picture

Pretty hard to make enough rumors to replace $6 billion free money crack hits to the bubble markets.

Tue, 07/05/2011 - 14:23 | 1427233 mynhair
mynhair's picture

It's not liquidation to cover Casey Anthony InTrade bets gone wrong?

Tue, 07/05/2011 - 14:38 | 1427237 carbonmutant
carbonmutant's picture

In other news:

Portugal claims it's winning the drug war, number of addicts down 50%...

No reference to cash dependent banks...

Tue, 07/05/2011 - 14:24 | 1427242 Slin
Slin's picture

Rot Roah

Tue, 07/05/2011 - 14:25 | 1427244 zorba THE GREEK
zorba THE GREEK's picture

 Do you believe Moody's would downgrade any country's debt without first getting OK from the

 Obama administration? 

Tue, 07/05/2011 - 14:29 | 1427262 I am Jobe
I am Jobe's picture

Wake me up when US defaults and the entire country wakes up. Till then who fcuking cares correct.

Tue, 07/05/2011 - 16:23 | 1427605 gorillaonyourback
gorillaonyourback's picture

i want at least a two week heads up alarm.

Tue, 07/05/2011 - 14:36 | 1427281 russwinter
russwinter's picture

Portugal and Greece are the least of the worries now, how about Brazil, big consumer debt bust underway:


The Brazil miracle is in general is tied in as a supplier to the China economic story.  The saving grace so far has been elevated commodity prices, but that hasn't staved off one the biggest consumer bubbles in the emerging markets. This article covers the basics,  debt service in Brazil has exploded to 28% of disposable income (compared to 16% in the US) , and delinquencies are spiking as well, from 7.8% at the end of 2010, to 9.1% in May. This one will blow up fast at the first blush of a commodity downturn.





Tue, 07/05/2011 - 15:32 | 1427468 youngman
youngman's picture

I used to vacation in Brazil when the dollar was stronger 4 to 1 stronger....almost bought something down that time interest rates were one had a loan..and everything was put money into condos as that was better than what a bank paid you...vs now they have lowered interest rates and they too have a real estate bubble....probably a car loan too...yes when or if China will hurt the new emerging countries...I live in Colombia..and they are spending too...a new middleclass....or so they think...time will tell....but the Chinese have some assets to dump before they have to many problems...the USA has none..only loans...and a printing press.

Tue, 07/05/2011 - 14:43 | 1427305 r101958
r101958's picture

This downgrade is meant to support the dollar/treasuries and take down commodities. Just like all the other Euro downgrades before it. Moody's, Fitch, S&P are extensions of UK/U.S. TBTFs and governments.

Tue, 07/05/2011 - 14:48 | 1427329 macholatte
macholatte's picture

Here's a cool chart that shows public debt by country and some more not so cool information. Looks like Australia is doing OK.

Tue, 07/05/2011 - 15:08 | 1427389 Ghordius
Ghordius's picture


Tue, 07/05/2011 - 15:32 | 1427471 carbonmutant
carbonmutant's picture

Looks like Italy's bonds are due for review...

Tue, 07/05/2011 - 15:41 | 1427496 A Man without Q...
A Man without Qualities's picture

The US govt is saving that one for when they are really in a pickle...

Tue, 07/05/2011 - 16:28 | 1427620 carbonmutant
carbonmutant's picture


Tue, 07/05/2011 - 14:49 | 1427332 zorba THE GREEK
zorba THE GREEK's picture


Tue, 07/05/2011 - 14:53 | 1427343 r101958
r101958's picture

We point our finger at others but 3 fingers are still pointing back at us.

Tue, 07/05/2011 - 14:55 | 1427348 anyways
anyways's picture

Zerohedge is the only source one needs to be timely and unbiased informed. Thank You Tyler.

Tue, 07/05/2011 - 15:12 | 1427399 digalert
digalert's picture

Santelli on the EU:

"don't matter where you squeeze the bubble, it's gonna pop elsewhere."

Tue, 07/05/2011 - 15:18 | 1427417 SheepDog-One
SheepDog-One's picture

Not if youre squeezing the bubble with your Mandarin 6 inch long fingernails.

Tue, 07/05/2011 - 15:26 | 1427435 Sudden Debt
Sudden Debt's picture

reminds me of a massage with a happy ending that didn't really end that well...


Tue, 07/05/2011 - 15:22 | 1427424 MrBinkeyWhat
MrBinkeyWhat's picture

S#it happens to nice people.

Tue, 07/05/2011 - 15:27 | 1427439 Sudden Debt
Sudden Debt's picture

Osama would agree with you on that one...

Tue, 07/05/2011 - 16:00 | 1427548 Turf
Turf's picture

we need to downgrade bitchezzzz

downgrade downgrade downgrade downgrade downgrade

downgrade aaaaaaaahhhhhhhhh

Tue, 07/05/2011 - 16:07 | 1427572 trentusa
trentusa's picture

This is my favorite locale on the net, but its painful for me now to read the best financial porn on the internet @ ZH. I want to know what's going on w/ Portugal & Los Alamos. Ill be back ya'll.  I got my hopes up on Greece last week. Dont even say a word about DSK.

   Ill never stop supporting this website and the beat goes on.

Tue, 07/05/2011 - 16:15 | 1427582 3rdWorldAmerica
3rdWorldAmerica's picture

Hey you know what's funny - you can take the above article and replace the word Portugal with the United States and it still makes sense. In fact in a couple years it will make perfect sense.

No one thinks it can happen - So I'm certain it will!

Tue, 07/05/2011 - 17:43 | 1427843 disabledvet
disabledvet's picture

Portugual defaulted last year at about the same time as Ireland.  Move along. My guess is post "the Fuku" all eyes are still on France--and ultimately the European Union in general since it was the French who made it happen (correctly in my view) in the first place--ironically starting with nuclear power.  Now that we know that the pursuit of "nukes" at any level other than the Russian or American to be a dangerous game of national bankruptcy we shall see.  Needless to say "where is the growth in the American economy?"  I certainly can see where it will come from....EVENTUALLY...

Wed, 07/06/2011 - 00:22 | 1428705 reinibe
reinibe's picture

There is enough Tax Payers Money to resolve the crises in Europe at least for 1 year.

If u watch it carefully, European sovereigns are still a good bet.

My Twitter with the important news:!/lowrisk007

Wed, 07/06/2011 - 07:14 | 1428954 luigi
luigi's picture

May De Niro forgive me for that, but these agencies are nothing but a lot of talk and rate... and in this case they aren't the good guys either.

Every statement of these agencies which are in fact only doing the world's ancienst job  should be welcomed whith lots of rapsberry blowing until they revise the rating of US and GB.

Argentina and Iceland show the way.

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