DBRS Is ‘Comfortable’ With Portugal’s Rating; Bonds Pare Decline

Europe, We Have a Problem
  • Firm’s co-head of sovereign ratings points to ‘stable trend’
  • Portuguese 10-year bond yield drops from highest this month

DBRS Ltd. said it’s “comfortable” with its credit rating for Portugal, allaying concern the company will downgrade the nation, which would threaten its eligibility for the European Central Bank’s quantitative-easing plan.

The BBB (low) grade “has a stable trend so that is a clear indication that we are comfortable with the current level,” Fergus McCormick, chief economist and co-head of sovereign ratings at DBRS, said in an interview on Wednesday. Portuguese bonds pared a decline following the comments, with the nation’s 10-year bond yield falling from its highest level this month.

DBRS is the only one of the four biggest ratings companies to maintain an investment-grade rating for Portugal. That allows its securities to be acquired by the ECB as part of its stimulus program, helping contain the government’s financing costs. The nation’s bonds tumbled on Tuesday after McCormick said in an interview with Reuters that Portugal’s recent gross domestic product data raised concerns over its growth prospects. DBRS is due to review Portugal’s rating on Oct. 21.

“The concern we have expressed in recent days is a cumulative concern,” McCormick told Bloomberg. He cited the nation’s slow growth, need for further austerity and questions over its political will for reform.

Still, the Toronto-based company has Portugal “well below the single A (low) ratings we have for both Spain and Italy,” he said. “So in terms of looking at it from a regional perspective we already rate Portugal relatively low.”

The yield on Portugal’s 10-year bonds rose three basis points, or 0.03 percentage point, to 2.87 percent as of the 5 p.m. London close, having pared a gain of 13 basis points to 2.97 percent, the highest since July 29.

“It just clarifies the situation that they’re a little bit concerned but it’s not like something imminent,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “I think yesterday’s comments seem to suggest that there was a big change. The urgency of yesterday’s comments were a bit clarified, and that’s what’s helped Portuguese bonds perform a little better into the close.”

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