Portugal is likely to be the last euro region country to seek an international bailout after the government yesterday joined Greece and Ireland in seeking aid, Goldman Sachs Group Inc. said. “We do not expect any other EMU sovereign to be in need of financial assistance,” said Francesco Garzarelli, Goldman Sachs’s London-based chief interest-rate strategist, in a report to clients. While Goldman doesn’t expect any “principal impairment” for bonds sold by Ireland and Portugal “a ‘voluntary’ extension of the maturity profile of Greek debt is likely.’”
Portugal is aiming for a package that may be worth as much as 75 billion euros ($107 billion), two European officials with knowledge of the situation said. Bond yields have surged since Socrates offered to resign on March 23 after parliament rejected proposed budget cuts. The bonds of “outer peripheral” countries “are likely to remain volatile and less liquid as they are removed from bond indices and fixed-income mandates,” Garzarelli said. Spreads between the yields of Italy, Spain, Belgium and those of AAA- rated economies such as Germany “will slowly compress,” he said. Goldman Sachs expects half of Portugal’s funding to come from European funds and the rest to come from the International Monetary Fund. The EU may use the opportunity to align the bailout lending rates of Portugal and Ireland with those of Greece, it said.
The European Central Bank is also likely to remove the rating threshold for Portuguese debt, according to Goldman Sachs