Portugal Bonds Jump Most Since June as DBRS Seen ‘Positive’

  • Finance minister spoke in interview after meeting with DBRS
  • Centeno says DBRS sees fiscal position as ‘very strong’

Portugal’s bonds climbed the most since June after the country’s finance chief said that rating company DBRS Ltd. has a positive assessment of the nation’s fiscal efforts, strengthening the government’s conviction that it will keep its investment-grade rating.

“I heard very positive comments and notes,” Finance Minister Mario Centeno said in an interview in Washington on Friday after a lunch meeting with DBRS. “Basically the position they have is that they feel very comfortable about our fiscal position, which they labeled ‘very strong.’ Of course, our expectation is that they will not change the outlook or the grading that we have.”

Mario Centeno

Photographer: Luke MacGregor

The country’s credit rating was retained at investment grade by DBRS in April, securing eligibility of Portuguese government debt for the European Central Bank’s bond-purchase program. DBRS is due to review Portugal again on Oct. 21, one week after the government is scheduled to hand in its 2017 budget proposal. The nation’s debt is rated below investment grade at Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

“Portugal has underperformed quite significantly over the last couple of weeks and is now getting a bit of support from this news that they expect no change in the DBRS rating,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank A/S in Copenhagen. “We are looking to the budget, which is out on Friday. We have the view that they will be OK and that will also support the view that DBRS will not downgrade them to junk on Oct. 21.”

Portugal’s 10-year bond yield fell 14 basis points to 3.44 percent as of the 5 p.m. close in London, the biggest decline since June 28. The securities closed on Friday at the highest yield since February.

Centeno’s confidence that Portugal will keep its only investment-grade rating mirrors that of his deputy, Secretary of State for Treasury Ricardo Felix.

“We are pretty confident from the conversations we had with DBRS that the rating will be maintained and the outlook will be maintained,” Felix said on Thursday in a Bloomberg Television interview from New York. “We have been in close contact.”

Even so, the government may have to revise down its forecast for gross domestic product growth this year, while sticking to a commitment to reduce the debt-to-GDP ratio.

“We do see a deceleration of exports vis-a-vis our previous scenario and that only has to do with the deceleration of external demand,” Centeno said. “We are not projecting a loss in market share,” he said, adding that the export slowdown may cut about 0.2 percentage point from the growth forecast. “Then we also have a deceleration of investment, and it’s uncertain how far it will go.”

The government in April forecast growth of 1.8 percent for this year and 2017. It estimated debt would decline for a second year to 124.8 percent of GDP in 2016 from 128.8 percent last year. The country’s central bank on Friday cut its forecast for Portugal’s economic growth in 2016 to 1.1 percent as investment drops.

“We are posting a primary surplus, which is the main condition for the debt-to-GDP ratio to fall,” said Centeno, who was in Washington to participate in the annual meetings of the International Monetary Fund and the World Bank. “We will have to see how things evolve until the end of the year but the commitment in terms of policy is the same as it was before.”

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