Portugal Keeps Investment-Grade Rating Allowing QE Eligibility

Portugal’s credit rating was retained at investment grade by DBRS Ltd., securing its eligibility for inclusion in the European Central Bank’s bond-buying plan.

The Toronto-based company kept Portugal’s rating at BBBL, its lowest investment grade, and maintained its stable trend, according to a statement on Friday. The rating was retained even after opposition parties ousted Prime Minister Pedro Passos Coelho in a vote on Tuesday, leaving the nation to await President Anibal Cavaco Silva’s announcement of a successor.

“The rating confirmation reflects DBRS’s assessment of Portugal’s improved credit profile in recent years, following the substantial progress in the reduction of the fiscal and external imbalances,” DBRS said in the statement. “However, Portugal also faces significant challenges, including elevated levels of public sector debt, ongoing fiscal pressures, low potential growth, and high corporate sector indebtedness. Moreover, political uncertainty has increased following inconclusive election results in October.”

For Portugal’s bonds to be eligible for purchase under the ECB’s quantitative-easing plan, the nation must be rated investment grade by at least one major ratings company. It had already been junked by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

The central bank had purchased 9 billion euros of Portuguese debt under the program through the end of October. Even so, it’s the euro-region’s worst performing debt market over the past month, losing 2.1 percent, according to Bloomberg World Bond Indexes.

Portugal’s “ratings could come under downward pressure if there is a weakening in the political commitment to sustainable economic policies, if weaker-than-expected growth leads to a deterioration in public debt dynamics, if a reversal of structural reforms were to occur, or if political uncertainty persist,” DBRS said in the statement.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE