Even with elections just around the corner and doubts about which Government will take office next, Standard & Poor’s (S&P) decided this Friday to raise the rating which assigns the Portuguese Treasury from BBB+ to A-, meaning that Portugal now has an A rating in the three main financial rating agencies in the world, something that could increase the number of investors interested in purchasing its public debt.
Expectations regarding what Standard & Poor’s would do this Friday (the date scheduled for a decision on the rating Portuguese) was already quite positive. Six months ago, the agency decided to place the Portuguese classification under a “positive perspective”, a sign that an increase in rating was already being considered.
The only problem lay in the doubts that the political crisis, with elections scheduled for March 10th, could raise regarding the future trajectory of budgetary policy in Portugal.
But, with the public debt ratio falling to below 100% of GDP at the end of 2023, S&P officials seem to have put any fears behind them, believing that Portugal will continue, whatever the government solution. found, a policy that maintains the downward trend in the value of public debt as a percentage of GDP, making the country more likely to fulfill the commitments it has with its creditors (which is what the ratings try to measure).
Big three in tune
The rise of rating from S&P to A- puts the ratings given to Portugal by the three main financial rating agencies all at the same level. Since last September, Fitch has also assigned a rating A- and Moody’s raised its rating to A3 in November (the equivalent of A- from other agencies).
It is the first time that this has happened since March 24, 2021, a few weeks before the arrival of the troika in Portugal, when S&P was the first of the three agencies to lower the classification assigned to level B (on this occasion to a rating from BBB).
The current consensus of the three main agencies regarding a level A rating could have positive consequences for the way in which the Portuguese State is able to obtain financing in international debt markets.
Investors look at ratings given by rating agencies rating as references to measure the risk posed by lending money to a State or a company. And therefore, in general, an increase in rating may lead to demand for the debt securities in question increasing and interest rates decreasing.
In this case, however, there is still one more reason to think that there will be positive consequences. One of the main reference indexes for defining the portfolios of investors in the public debt market, the FTSE World Government Bond Index (WGBI), defines that only countries with ratings at least A- in Moody’s and S&P can be included.
With the decision announced this Friday by S&P, the possibility of Portugal becoming included in this index is therefore open, which could result in an increase in demand for national public debt securities and, eventually, a more favorable evolution of interest rates. interest.
With the rise to an A- rating, in the case of Standard & Poor’s, it is one step below the rating of Spain, which is from A. As far as Moody’s is concerned, the rating Portuguese is one level higher, while at Fitch the ratings for both countries are the same.
