Portuguese government bonds rallied last week, but we doubt that this will continue. Sooner or later, we think that concerns about the sovereign credit rating and falling ECB asset purchases will push Portugal’s bonds yields higher. Our end-2017 forecast for the 10-year yield is 4.50%. there are several reasons why we expect yields to resume their upward trend. The first is that investors are concerned about a possible credit rating downgrade by DBRS. The ratings agency’s next review of Portugal will be on 21st April. If it were downgraded, Portugal’s bonds would no longer be eligible for purchase under the ECB’s QE programme. That said, DBRS’ rating outlook for Portugal is ‘stable’, perhaps suggesting that a downgrade is unlikely. Nevertheless, that outlook might be revised down to ‘negative’, bringing a full rating downgrade closer and pushing yields up further.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services