LISBON/DUBLIN-­Credit rating agency Fitch downgraded Portugal yesterday saying the debt-laden country needed a bailout, while rival agency S&P cut Ireland's rating after bank stress tests revealed another black hole. Despite a successful Portuguese debt sale on Friday, Fitch slashed its rating to the lowest investment grade rank of BBB. "The severity of the downgrade by three notches mainly reflects Fitch's concern that timely external support is much less likely in the near term following yesterday's announcement of general elections to take place on 5 June," said Douglas Renwick, Director in Fitch's Sovereign Ratings Group.
"The agency views external support as necessary to bolster the credibility of Portugal's fiscal consolidation and economic reform effort, as well as secure its financing position," Renwick said in a statement. Earlier Standard & Poor's became the last of the three major rating agencies to strip Ireland of its 'A' rating. However, the one notch cut and stable outlook was less severe than feared and it gave the thumbs up to stress tests which on Thursday showed its four troubled banks needed a further 24 billion euros (£21.2 billion) to be properly capitalised.
Portugal sold 1.645 billion euros of short-dated bonds on Friday, but had to offer an interest rate of 5.79 percent, lower than other current market rates but 2.5 percentage points more than it paid at similar auctions last year. Lisbon is now having to pay a higher interest rate to borrow money for the next 15 months than Spain is paying to raise funds for 10 years - a clear indication of how much risk investors now attach to Portugal. Portugal's 10-year bond yields went on rising despite the smooth auction, hitting 8.77 percent, up more than a percentage point in the past week. Ireland's reached 10.1 percent, nearly 6.5 percentage points higher than benchmark German Bunds. Reuters