A Troubled Portuguese Bank Has The Country's Interest Rates Surging

Banco Espirito SantoREUTERS/Rafael MarchanteA man has his shoes shined near an office of Portuguese bank Banco Espirito Santo in Lisbon June 20, 2014.

The rate on Portugal’s benchmark 10-year bond rose sharply on Wednesday amid concern over one of the country’s biggest banking groups, an analyst said.

In afternoon trading on secondary government debt markets, the rate, or yield reached 3.778 per cent, compared with 3.648 per cent at the close of trade on Tuesday.

“Portuguese assets are under pressure in general, something that might stem from the banking sector,” commented Cyril Regnat, a bond strategist at the French bank Natixis.

Earlier in the day, the financial news agency Bloomberg quoted Banco Espirito Santo (BES), the biggest Portuguese bank by capitalisation, as announcing delays in payments of short term debt by its parent holding company.

The credit ratings agency Moody’s Investors Service subsequently downgraded Espirito Santo Financial Group to “Caa2” from “B2”, which means it is considered vulnerable to default, and maintained ESFG on a negative watch for possible further downgrades.

“The downgrade reflects Moody’s view of a higher credit risk profile for ESFG following the increase in ESFG’s exposure to its indirect shareholders (Espirito Santo International (ESI) and Rioforte),” a statement said.

Investors have also begun to shy away from government debt in other peripheral southern eurozone countries.

The rate on Spanish 10-year debt rose on Wednesday to 2.758 per cent from 2.719 per cent, while that of Italy increased to 2.884 per cent from 2.841 per cent.

In Germany, the eurozone reference, the rate on the Bund was stable at 1.223 per cent.

Copyright (2014) AFP. All rights reserved.

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