Lisbon’s bonds rise on outlook

Portugal’s bonds rose the most since June after the country’s finance chief said that rating company DBRS has a positive assessment of the nation’s fiscal efforts, strengthening the government’s conviction that it will keep its investment-grade rating.

“I heard very positive comments and notes,” finance minister Mario Centeno said in an interview in Washington late last week after a lunch meeting with DBRS.

“Basically the position they have is that they feel very comfortable about our fiscal position, which they labeled ‘very strong’. Of course, our expectation is that they will not change the outlook or the grading that we have.”

The country’s credit rating was retained at investment grade by DBRS in April, securing eligibility of Portuguese government debt for the ECB’s bond-purchase programme.

DBRS is due to review Portugal again on October 21, one week after the government is scheduled to hand in its 2017 budget proposal.

Portugal’s debt is rated below investment grade at Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

“Portugal has underperformed quite significantly over the last couple of weeks and is now getting a bit of support from this news that they expect no change in the DBRS rating,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank in Copenhagen.

“We are looking to the budget, which is out on Friday. We have the view that they will be OK and that will also support the view that DBRS will not downgrade them to junk on October 21.”

Portugal’s 10-year bond yield fell 10 basis points to 3.48% at one stage. They closed on Friday at their highest yield since February.

Mr Centeno’s confidence that Portugal will maintain its only investment-grade rating mirrors the opinion of his deputy, secretary of state for treasury Ricardo Felix.

“We are pretty confident from the conversations we had with DBRS that the rating will be maintained and the outlook will be maintained,” Mr Felix had said last week.

“We have been in close contact,” he said. Even so, the government may have to revise down its forecast for GDP growth this year, while sticking to a commitment to reduce the debt-to-GDP ratio.

“We do see a deceleration of exports vis-a-vis our previous scenario and that only has to do with the deceleration of external demand.”