Halister News

(Bloomberg) -- Portuguese markets are under severe stress, more than rest of periphery, as global risk aversion overlaps with challenging domestic policy outlook, write Morgan Stanley analysts including Daniele Antonucci in client note.

• Remain cautious on PGBs given high volatility and illiquid market conditions
• Portugal economy is expanding at subdued rate; reforms have some effect, though problem of high overall debt, low potential growth remain
• Budget is within EU limits, though there’s risk of slippages; uncertainty on how long far-left support for minority govt will continue; unorthodox banking-sector policies (Novo Banco senior debt haircut) may have created uncertainty in the market
• Funding situation is manageable, relatively strong cash position; issuance est. at just EU3b for 2016, small redemptions in 2017
• Market gyrations are overdone, though remain cautious on PGBs; concerns about Portugal’s credit rating, implications for ECB QE buying will remain in focus until resolved

• NOTE: DBRS Says High Level of Govt Debt Exposes Portugal to Shocks
• NOTE: Portugal May Lose QE Eligibility on Downgrade Risk: Commerzbank