14:29 ET<\/span>
\n<\/span><\/p>\nRatings agency Standard & Poor’s has downgraded struggling Greece and Portugal on further debt worries.<\/p>\n
S&P says investors in their bonds could lose out under the terms of a new eurozone bail-out package.<\/p>\n
The move pushed up the countries’ borrowing costs as lenders demanded a higher rate of return for buying government bonds.<\/p>\n
The downgrades left Portugal one notch above junk rating and Greece’s creditworthiness below that of Egypt.<\/p>\n
S&P cut Portugal by one notch to BBB-, having slashed its rating last week after Lisbon’s government fell.<\/p>\n
Greece was cut by two notches to ‘BB-‘, the latest in a series of downgrades.<\/p>\n
S&P, one of the top three ratings agencies, said the downgrades were in response to concerns that a new eurozone debt rescue system agreed at a European Union summit last week could penalise investors.<\/p>\n
“Our view is that this really is a game changer,” S&P analyst Frank Gill said, referring to the European Stability Mechanism (ESM) agreement.<\/p>\n
“We do think it is clearly negative for holders of commercial debt, that is our view, that it will weigh on countries’ capacity to serve their commercial debt,” he said.<\/p>\n
The ESM means that investors could see their investments restructured, either in terms of the amount they get repaid or the length of time they have to wait for repayment.<\/p>\n
Portugal has not yet called on money from the European bail-out fund, but many analysts believe it is just a matter of time as the country’s economic situation worsens.<\/p>\n
The Bank of Portugal warned on Tuesday that the country might need substantial new austerity measures to ensure it can meet budget reduction targets.<\/p>\n
Higher costs<\/span><\/p>\nFor Greece, whose near default in May threatened to sink the whole eurozone project, S&P said the government was struggling badly to meet the targets set under its 110bn euro (\u00a397bn;$150bn) EU-IMF bail-out deal.<\/p>\n
The S&P downgrades had an immediate impact in the money markets.<\/p>\n
The yield, or return rate, for investors in Greek benchmark 10-year bonds rose to 12.568% from 12.499%.<\/p>\n
Portuguese rates rose to 7.881% from 7.818%, having hit a record high of 7.97% shortly after S&P’s announcement. <\/p>\n
Yields of 7% or above are considered unsustainable in the long run, meaning both countries could face problems raising money from lenders.<\/p>\n<\/p><\/div>\n<\/p>\n
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