Portugal May Need a Bailout by September, Morgan Stanley Says
Portugal may need to ask for a second bailout by September as the nation is hamstrung by weak economic growth and lack of access to bond markets at affordable rates, according to Morgan Stanley.
The nation agreed to a 78 billion-euro ($102 billion) aid plan from the European Union and the International Monetary Fund last year. Yields on the country’s 10-year bonds are at an unsustainable 11.85 percent and credit-default swaps signal a 61 percent probability of default.
“We expect a deeper recession than official projections and consensus estimates,’ Morgan Stanley analysts including London-based Daniele Antonucci said in a report. ‘‘Our base case is a second bailout package by September 2012; however, we see risks of possible derailment in the medium term.’’
Gross domestic product will fall 3.4 percent this year after declining 1.6 percent in 2011, the Bank of Portugal said March 29. Portuguese Prime Minister Pedro Passos Coelho, who plans to resume bond sales next year, has said a failure to regain market access would trigger additional ‘‘support’’ from EU peers.
‘‘The current determination in Europe to avoid another debt restructuring may be challenged further down the road, if the fundamentals deteriorate,’’ the Morgan Stanley analysts wrote.
Investors with exposure to Portugal should switch from short term to long terms bonds, said the analysts, recommending selling Portugal’s bonds due 2017 and buying debt maturing 2037.
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