Halister News

(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