LONDON (MNI) – Portugal could not afford bond yields above 7% for
more than a couple of months, a Fitch analyst said today.
Speaking to Market News on the margins of a Fitch European Credit
Outlook today, Fitch’s Head of Global Sovereign Ratings David Riley
said:
“It wouldn’t automatically result in a regrading of Portugal, 7%
in the long-run, is an unsustainable yield for Portugal, but 7% yields
for a relatively short period of time are affordable. They can afford
that level of borrowing for several months, if it becomes more permanent
then debt dynamics become more challenging. And I think they’re willing
to live with 7% for a while as they’re confident and hopeful that if
they deliver on fiscal targets there’s a policy response at a European
level then their yields will fall to 4-5%.”
Current Portuguese 10-year bond yields are near 6.75% at present.
Touching on recent calls for non-AAA euro zone states to inject
cash into the European Financial Stability Fund, Riley said that the AAA
rating of the EFSF was a ‘strong’ AAA rating which rested on those of
its biggest guarantors, such as France and Germany.
“The rating of the EFSF is not dependent on the rating of the
non-AAA guarantors. It’s more dependent on the AAA guarantors.
Obviously, France and Germany are the largest guarantors and the cash
and liquid reserves in the EFSF will hold against the risk of not only
in the event of a default by a borrower from the EFSF but also in the
event that you have a borrower default and then one of the guarantors
defaults, the combination of the AAAs plus the cash mean that it’s
actually robust even in that scenario. It’s a strong AAA. Perhaps I
shouldn’t say that, I know people have heard that before perhaps. Put it
this way, it’s as strong a AAA as the AAA ratings of the garantors”.
–London Bureau; Tel: +442078627492; email: wwilkes@marketnews.com
[TOPICS: MGX$$$,MFX$$$,MFXBO$,M$X$$$]
