The Fitch Ratings agency upgraded Portuguese debt to investment grade status on Friday.
Fitch raised its evaluation of Portugal to BBB with a positive outlook from BB+ with a positive outlook. This means it no longer considers Portuguese bonds to be junk.
Two of the big three ratings agencies now rank Portugal as investment grade, which widens Portugal`s pool of potential investors considerably.
Some institutional investors can only buy sovereign debt that`s rated investment grade by two agencies. With Portugal back in that bracket, borrowing costs will come down.
Fitch was the first agency to downgrade Portugal to junk status back in July 2011. The decision was made shortly after Portugal requested a 78 billion euro bailout package from the EU, European Central Bank and International Monetary Fund.
The Standard & Poor`s (S&P) and Moody`s ratings agencies followed Fitch`s example shortly thereafter, further aggravating Portugal`s debt problem.
But Portugal exited the European Union Excessive Deficit Procedure program in May this year and in September S&P raised Portugal`s credit rating to BBB-. The S&P thus became the first ratings agency to rate Portuguese debt as investment grade since January 2012.
Fitch had been expected to follow suit on Friday, but went one step further, raising Portugal to a BBB rating rather than the anticipated BBB-.
Moody`s is likewise predicted to upgrade Portugal when it reports on the country in early 2018.
Moody`s upgraded Portugal`s outlook from stable to positive in September, but maintained a Ba1 rating, one rung below investment grade.
Yields on Portugal`s benchmark 10-year bond fell to 3-year lows in Friday trading in anticipation of Fitch`s decision. Further falls can be expected when European markets reopen on Monday.
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