Instant view: Portugal downgraded to junk by Moody's

NEW YORK Tue Jul 5, 2011 2:58pm EDT

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NEW YORK (Reuters) - Moody's Investors Service on Tuesday cut Portugal's credit rating by four levels to Ba2, two notches into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets.

COMMENTS:

ROBERT TIPP, CHIEF INVESTMENT STRATEGIST, PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY:

"Portugal going non-investment grade by one of the ratings agencies is not so damning. It's when a second major ratings agency makes a move, then they start to drop out of the indices. The odds are pretty good Portugal will end up dropping out of the indices sometime over the course of the next year and that will increase funding pressures. That means they could need a second-round bailout such as we are seeing right now for Greece, with all the headaches and hand-wringing and private sector involvement needed to get that done.

"The only saving grace for Portugal. of course, is that it's much smaller than Greece. But that ratings downgrade reminds markets that it's not just Greece with debt issues. Once Greece gets wrapped up, you move on to the next country, and in all likelihood that will be the shape of things to come over the next year or two in the eurozone until the long-term financing trajectory for these countries gets stabilized."

RYAN DETRICK, SENIOR TECHNICAL STRATEGIST, SCHAEFFER'S INVESTMENT RESEARCH, CINCINNATI

"Our take is that we've seen these downgrades before. A lot of the negativity has been priced into the stock market. We are starting to bounced higher from the lows.

"It's a harsh reminder that the issue is still there, but is it getting worse? It's by no means we are out of the woods. We are not overly concerned with this intraday downgrade."

MICHELLE GIBLEY, SENIOR MARKET ANALYST AT CHARLES SCHWAB & CO, DENVER:

"It is probably not that unexpected. People were thinking they would probably need another bailout before they can make the adjustments necessary. Growth is slow there and these bailouts are not really bailouts when interest rates are so high and growth is so low.

"The sovereign debt concerns in Europe are not over. That is basically what this downgrade means. Greece is going to have to review its fiscal situation every quarter. We could get into a situation where the austerity measures have hit (Greek) growth so much that they will not meet their targets.

"Some of the Spanish banks that trade might give some indication here. Some of them have sold off a little bit. The two economies are very closely linked, although Spanish banks do have operations globally, so it is not the dominant influence."

RICHARD GILHOOLY, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK:

"We're at the lows in yields, the highs in price (in Treasuries). At the margin its relevant but its only relevant because we were already trading the Greek news. In itself I don't think its significant. Moody's suggestion that they may need a second bailout package may be more relevant. That scenario is negative overall, each time they take one step forward its like there are two steps backward after that. "

"Given that we've sold off 30 to 40 basis points (in Treasury yields), the market is reconsidering whether that spike in yields last week was justified."

JAY BRYSON, WELLS FARGO SECURITIES, GLOBAL ECONOMIST, CAPE HATTERAS, NORTH CAROLINA:

"It goes to show that this whole crisis isn't over just yet. Even if they cough up some more money for Greece, and that looks like it's a done deal, it's not over. I would think it's bad news for Spain and Italy as well. It's just another indication this crisis is going to continue for a while."

MICHAEL JAMES, SENIOR TRADER AT REGIONAL INVESTMENT BANK WEDBUSH MORGAN, LOS ANGELES:

"The potential for the market going down from here on this is greater given the big rally that we had last week. The market had a 6 percent move and now you get this news about Portugal's debt being downgraded. Certainly the potential for that causing a market pullback is a lot higher here than it was a couple of days ago.

CARY LEAHEY, ECONOMIST AND MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK:

"The Portugal downgrade clearly is negative because as the downgrades spread from the weakest to the weaker, the market is now asking, 'If Portugal is downgraded, will Spain be next?' It's symptomatic of the contagion effects in the eurozone. Ultimately, these ratings downgrades should be dollar-friendly and euro unfriendly. And friendly for anything considered to be, in some sense, a safe-haven -- like Treasuries."

GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON:

"The market hasn't reacted too much yet but things are thin today. But this is big news, contagion is happening. What's next? Ireland? Some are even worried about Italy now. It's definitely a euro-negative. We've seen safe-haven gold purchases and stocks are selling off on it. It's a troubling new development, given that Greek austerity measures have yet to be implemented. I think the worst fears of the ECB are being realized and people might get very aggressive. You could even see Italian bonds get sold aggressively."

LUKE RAHBARI, PARTNER AT STUTLAND VOLATILITY GROUP IN CHICAGO

"For the main part this was expected, though the markets did trade down on it. Everyone expected a downgrade, so this is more symbolic. The amount of debt Portugal has isn't as big as other countries. What people are waiting on is to see how Greece is treated, that'll be the playbook for how this situation plays out for other countries, more or less. In the short-term, everything will be pressured here. Everyone wants to get out of every asset and reassess after we get more clarity."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"This renews the question of whether not just Greece but the other peripherals are likely to need more bailouts. These issues were not extinguished last week. There was a nice dose of water poured on them but they are still smoldering, and this is like adding gasoline to those smoldering ashes. The euro could drop below $1.44, though it may have to wait until after the ECB meeting."

MARKET REACTION: STOCKS: U.S. stock indexes edged slipped BONDS: U.S. bond prices gained FOREX: The dollar gained against the euro

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Comments (1)
jkilroy wrote:
What is Mr. Tipp talking about???? The only saving grace is Portugal OF COURSE is a lot smaller than Greece.

Greece = 11.238 million people

Portugal = 10.632 million people

A difference of 657,000 people i.e. Portugal has 5.8% less people.

GDP Greece 329.92 billion vs. 232.87 billion

Debt Greece 532.9 billion vs. $497 billion

GDP to Debt Ratio Greece 1.62 vs. 2.14

Find me some saving grace some place and explain what he means and where Portugal is much smaller?

And this guy is heading Prudential’s fixed income.

And when experts make these kind of uninformed comments they wonder why we don’t care to take them seriously on things that are truly important.

Thanks, Mr. Tripp, but I think I’ll put my money with PIMCO.

Jul 06, 2011 1:03am EDT  --  Report as abuse
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