Portugal's Government Bonds Now at "Junk" Status

By:  Bruce Walker
07/07/2011
       
Portugal's Government Bonds Now at "Junk" Status

Wednesday, the financial crisis which is threatening all Europe deepened, as the rates for Portuguese government debt instruments jumped higher based upon a decision by Moody’s rating service to reduce those bonds four levels to "junk" status. The drop was from Baa1 to Ba2 on long-term Portuguese bond ratings.

The effect upon Portugal was immediate — but more ominously, in nearby Spain (the fourth of the so-called "PIGS" nations, the others being Portugal, Italy, and Greece), the stock market dropped 1.5 percent and the amount of interest required by bond purchasers rose. Spain's economy is significantly larger than that of the other PIGS — and only somewhat smaller than the economy of France. Even worse, stocks dropped 2 percent in Italy, affected not only by the ripple of the PIGS but also because spending cuts have not seemed to help its huge national debt.
 

Wednesday, the financial crisis which is threatening all Europe deepened, as the rates for Portuguese government debt instruments jumped higher based upon a decision by Moody’s rating service to reduce those bonds four levels to "junk" status. The drop was from Baa1 to Ba2 on long-term Portuguese bond ratings.

The effect upon Portugal was immediate — but more ominously, in nearby Spain (the fourth of the so-called "PIGS" nations, the others being Portugal, Italy, and Greece), the stock market dropped 1.5 percent and the amount of interest required by bond purchasers rose. Spain's economy is significantly larger than that of the other PIGS — and only somewhat smaller than the economy of France. Even worse, stocks dropped 2 percent in Italy, affected not only by the ripple of the PIGS but also because spending cuts have not seemed to help its huge national debt.

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Photo: Bank of Portugal branch in Oporto
 

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