National daily Jornal de Negocios reports that Portuguese debt ceased to be accepted by the Swiss National Bank as collateral in January 2009. The basic story has been confirmed by the FT, and an article will be published shortly with details (linked when available). It is unclear at present what types of debt have been excluded and for what purposes.

This will be a further knock to confidence in Portugal, a country facing high and increasing costs of debt, which needs to raise more debt in the near future. Yields on Portuguese government bonds – a proxy for the country’s cost of debt – today touched 7.125 per cent in intraday trading today, close to peaks during Ireland’s crisis.

The financial impact should be small since the exclusion seems to have been in place for a year, but given the febrile state of the markets, the psychological impact could be significant. The SNB’s move might prompt further credit rating downgrades, which would make debt even more expensive for the government and could imperil the debt’s eligibility elsewhere. Recent downgrades have left Moody’s, S&P and Fitch ratings for sovereign debt at A1, A- and A+, respectively. Moody’s A1 rating is roughly equivalent to A+, but the rating is on review for downgrade. Read more