Portugal May Lose QE Eligibility on Downgrade Risk: Commerzbank
(Bloomberg) -- Investors could turn increasingly cautious on Portugal as rising yields, new budget may pressure ratings agencies, risking QE eligibility, writes Commerzbank’s David Schnautz in a client note.
- Another selloff in PGBs, like the one seen this week, may prompt investors to consider whether another bailout is needed
- European Commission likely to ask for further corrective measures in new budget when spring projections released in May
- High debt/GDP ratio, unwinding bailout measures leaves rating agencies plenty of reason for criticism
- All “big 3” ratings agencies hold Portugal as “junk"; upcoming Fitch, S&P reviews likely to bring some hawkish criticism
- This will put pressure on DBRS to bring rating in line with the ‘‘big 3"; currently held at the lowest investment-grade level
- DBRS to comment on April 29, downgrade would cause loss of QE eligibility, sending PGBs into ‘‘a tailspin’’
- Downgrade is not a base case, though investors may price an increasing risk
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 1174Z PL (Portuguese Republic)
0629846D BB (European Commission)
People David Schnautz (Commerzbank AG)
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