The night before a government debt auction, Moody’s concluded its review of Portugal with a two notch cut to their credit rating, which now stands at A3. The rating agency also left the sovereign issuer with a negative outlook, implying further downgrades are likely within two years if there is no improvement.
According to central bank forecasts, the economy will contract by 1.3 per cent this year, pushing Portugal into its second recession in three years. Citing subdued growth prospects and high borrowing costs, Moody’s actions might aggravate both issues today. Portugal is aiming to raise up to €1bn in 12-month Treasury Bills at auction and yields in the secondary market – an indication of the government’s cost of debt at auction – have risen this morning and remain near record highs.