Portugal cut to Baa1 from A3 by Moody on the advice of rescue

05 April 2011, 6: 25 pm EDT by Emma Ross-Thomas and Simone Meier

(Updates with credit swaps - by default in the ninth paragraph, S & P downgrade in the last paragraph.)

April 5 (Bloomberg) — the Portugal credit rating was cut by the Service of investors from Moody for the second time in three weeks in expectations, it will be impossible to avoid a European rescue.Moody downgraded the long-term ratings of binding the Government of a level of Portugal to Baa1 from A3 and said that he plans a further reduction. Moving of today has put the country at the same level as the Ireland, the Russia, the Mexico and Thailand. Fitch Ratings three decommissioned April encoches Portugal to BBB-, the most low and kept investment grade rating on "watch negative." "" Moody rating action was led mainly by an increase in political, economic uncertainty and budget, the company said in a statement via e-mail today."" He expected that the winner of the 5 June, elections to exploit European installation of financial stability with "emergency" and that Portugal will be able to obtain the support of other members of the euro before this date if necessary.Investors increase bets Portugal will follow the Greece and the Ireland in seeking a rescue as its fresh borrowing a wave Records. "Socialist Prime Minister Jose Socrates resigned last month after Parliament rejected his austerity measures needed to tackle the deficit."The Portugal still has a rating of Moody's investment-grade, but it will become a big problem when it lost this status because those who do not have a mandate to keep sub-sub-pre-investment-grade bonds will be forced to sellsays Pavan Wadhwa, Chief Strategy Officer of global interest rates to JPMorgan Chase & Co. in London. "It's just the matter of time before the Portugal will have to seek external assistance."RedemptionsThe vote will take place between two bond redemptions, April 15 and June 15. Deadlines a total of 9 billion euros (13 billion dollars).Socrates repeated yesterday that he will avoid requesting outside help. The gap between Portuguese and German 10-year bonds breaks 536 basis points today, the highest level since the beginning of the euro. The yield on five-year notes rose to a record euro-ère of 10.06% today. The country plans to sell up to 1 billion euros (1.4 billion dollars) of the projects of six and 12 months of tomorrow.The cost of protection against Portuguese default reached a record, surpassing the prize for the Irish debt of insurance for the first time in seven months.Credit swaps - by default on the obligations of the Portugal climbed 12 basis at 592 points, which implies a likelihood of 41 per cent, the Government will renege on its debts in five years, according to the CMA. Contracts related to the notes of the Ireland fell 11.5 basis points for 587.5.No that talksthe European Commission is not in discussions with the Portugal on a possible bridge loan, commission spokesman Amadeu Altafaj said today in an email.The Portuguese daily Publico reported yesterday that the Portuguese and European representatives evaluated a scenario in which Portugal could obtain a loan in the short term of the European Union if he is not able to obtain all its funding requirements until a new Government is formed.The country can meet with "redemption of debt commitments scheduled for 2011, especially repayments of long-term debt which will take place in April and June," Secretary of State for the Treasury Board and finance Carlos Costa Pinasaid last week. He said that the vote may calm markets. "Financing costs has been dramatically aggravated by the political crisis triggered by the opposition,"he says. "A clarification of the political situation is urgent." ' Untenable ' LevelOpinion polls suggest that Socrates Socialists will lose the election. Social Democrats led the Socialists 37.3 to 30.4% in a survey of voters published 1 April on the site Web of the Expresso.Socrates newspaper became Prime Minister in 2005 and his Socialist Party was re-elected in 2009 without a majority. The Social Democrats agreed in October to let his 2011 budget to pass by abstaining. Their opposition to the new austerity measures announced on March 11, which included a reduction in pensions and tax reductions, paralyzed the Government.March 28, the President Anibal Cavaco Silva said that the three largest political parties are committed to their commitment to the targets of current deficit and reduce the deficit limit of 3% of EU gross domestic product by 2012. The country reported a deficit of 8.6 per cent of GDP for 2010 "."Current cost of the Government of funding is almost a level that is not sustainable," Moody said. "It is highly likely that long-term debt markets will reopen the Government of Portugal or Portuguese banks to any useful extent until the Government is able to take measures to dispel doubts about its commitment and its ability to implement the programme budget."Standard & Poor downgraded March 29 Portugal for the second time in a week to BBB-, the lowest investment grade, saying that the country will be relief fund "probably access" of Europe. The rate of company lower Portugal of the Ireland, which, in November, became the first to seek the assistance of the European financial stability facility, established after the rescue of the Greece in April 2010.

-With the help of Joao Lima to Lisbon and James Cone, Anchalee Worrachate and Abigail Moses in London. Editors: James Hertling, Patrick Henry

To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net; Simone Meier in Zurich to smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling cstirling1@bloomberg.net

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