Swiss Central Bank: No Portuguese Bonds

Inquiring minds are upon the Swiss Central Bank and its decision to nix acceptance of Portuguese Treasury’s:

The Central Bank of Switzerland has reportedly decided not to accept Portuguese treasury bonds any longer as guarantee in cash operations. According to the Portuguese Jornal de Negcios, which brings the news, Portugal’s sovereign rating no longer satisfies the requirements of the Swiss bank to accept treasury bonds as guarantee.

Last month Fitch cut Portugal’s rating to A+ from AA-. Two other agencies, Moody’s and Standard & Poor’s, put the country’s rating under observation for a possible downgrade.

Just released info has the other side of the same question:

In the case of Portugal, the situation should calm down with the final agreement on the budget (planned to occur by 26 November). Even though the economic conditions in the country are by no means grand, Portugal is still faced with a debt ratio of “just” 86% of GDP (EUR average in 2010: 82%) and a planned 2011 budget deficit of 4.6% of GDP (Austria: previously planned at 4.6%, now targeted at around 3.5% with the new draft of the budget). In contrast to Ireland, Portugal is not struggling with a burst real estate market bubble and the ensuing massive refinancing needs for the country’s banking sector. Accordingly, default by Portugal appears unlikely in the years ahead.
Today’s bond auction by Portugal also reduced the short-term risks: although the issue of 6- and 10-year bonds was quite expensive for Portugal (issue yields of 6.16% and 6.8%), it had no problems placing the bonds at these levels (bid-to-cover ratios of 2.3 and 2.1). The icing on the cake is that Portugal does not need to issue any further bonds this year and has its financing secured for now. Of course, this does not imply that Portugal will not have to resort to the EU financing mechanism in 2011, if conditions continue to deteriorate until then. However, in light of Portugal’s size (the country’s public debt totals EUR 142 bn), it would not be difficult to organise transitional financing.

So, there you have two sides to the argument.

Isn’t that as clear as mud?


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