Moody's Downgrades Portugal to Baa1, Bonds, EUR/USD Fall (Charts)

Portugal 10y Bond 8.76% (Bloomberg)
From Moody's Investors Service:

"London, 05 April 2011 -- Moody's Investors Service has today downgraded Portugal's long-term government bond ratings by one notch to Baa1 from A3 and placed the rating on review for possible downgrade. Concurrently, Moody's placed the government's (P)Prime-2 short-term debt rating on review for possible downgrade.

Moody's rating action was driven primarily by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve the ambitious deficit reduction targets set out in the update of its Stability and Growth Programme for 2011-2014 and put its finances on a sustainable trajectory."
(read full release at

Baa1 is three notches above junk (Ba1). As a result of the downgrade, yields on Portugal's 2-Year government bonds and 10-Year government bonds spiked to 8.971% and 8.766%, respectively (chart above). Greek government bonds still have higher yields.

EUR/USD is at 1.4164, down 0.41% since early Monday (1.4223, see chart). It was testing the 3 year downtrend. EUR/USD is also near the uptrend from early January, an important near-term support level.

Further reading:

Portugal Banks Threaten to Shun Sovereign Bonds: Report (Reuters)

Moody's cuts Portugal, says bailout needed urgently (Reuters)

Portugal Rating Cut to Baa1 From A3 by Moody’s on Bailout View (Bloomberg)

Portuguese Government Bonds Decline for 11th Day After Moody’s Cuts Rating (Bloomberg)

Portugal Hit With Downgrade (New York Times)

European Stocks Lower On Portugal Downgrade (Dow Jones Newswire)