Fitch Raises Portugal Rating to Positive

Rating agency Fitch raised its outlook on Portugal’s debt rating to “positive” from “negative” on Friday, citing the country’s strong progress in cutting its budget deficit, regaining market access and improving economic growth.

The agency, however, also said Portugal should go for a precautionary line of credit from its lenders when it exits its international bailout.

Fitch left Portugal’s rating unchanged at BB+, which is just one notch into junk territory. Fitch has the highest rating that any of the main agencies have for the country and the outlook move puts Portugal closer to regaining investment grade.

Fitch upgraded its growth forecasts for Portugal and said the country has now regained debt market access as it prepares to exit its international bailout in May.

“Portugal’s fiscal financing conditions have improved markedly since Fitch’s previous rating review in October 2013 and the sovereign has effectively regained market access,” Fitch said.

“Portugal is making good progress in reducing its budget deficit. The 2013 fiscal performance exceeded Fitch’s expectations and outperformed the IMF-EU (International Monetary Fund-European Union) programme targets, even excluding one-off factors,” it said.

Portugal’s bond yields have fallen sharply in the past few months on improving prospects of a smooth exit from the bailout on strong economic prospects. Benchmark Portuguese bond yields were little changed at around 3.91 percent after the Fitch news.

Analysts at Rabobank said in a note the change in the outlook had been expected by the market.

“Given this and that there was still no actual upside change to the rating we expect this news to support continuation, rather than acceleration, of the tightening of Portuguese spreads,” Rabobank said.

On the precautionary credit line, Fitch said Portugal should opt for one when the bailout ends to protect against risks.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza