February 12, 2016 / 4:15 PM / in 2 years

UPDATE 1-Ratings agency DBRS worried by Portugal's bond rout

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By Marc Jones and John Geddie

LONDON, Feb 12 (Reuters) - The only credit rating agency to give Portugal an investment- grade rank - which the country needs to take part in the European Central Bank's bond-buying programme - said on Friday that it was concerned by a recent rise in its bond yields.

Canadian ratings firm DBRS said it was comfortable with its BBB (low) 'stable' rating for now, but recent market volatility was a worry. This week saw the biggest weekly rise in Portuguese bond yields since the height of the euro crisis.

The ECB requires one of its four recognised agencies - DBRS, Standard & Poor's, Moody's and Fitch - to rank a country investment grade before it will buy that country's bonds under its 1.5 trillion-euro quantitative easing scheme.

"As of today, we feel comfortable that our `stable' trend on Portugal is appropriate," Fergus McCormick, head sovereign analyst at DBRS, told Reuters.

However, "the recent rise in bond yields is a concern, given the high refinancing burden," McCormick said. "If market volatility persists, our attention then turns to the political equation and what is feasible in terms of fiscal adjustment."

DBRS is next due to review the rating on April 29.

Around a third of Portugal's 148 billion euros of outstanding debt falls due over the next three years. The higher yields rise, the more expensive it will be for the country to roll over that debt, which in turn squeezes its finances.

With markets worried about global growth and the health of the world's banks, Portugal has been singled out by investors who question whether the new government can stick to a budget plan it agreed with the European Commission last Friday.

Portuguese Prime Minister Antonio Costa said the Socialist government would prepare additional budget measures to make sure the country meets EU fiscal goals and reinforces investor confidence, but he does not think they will be needed .

"Portugal has implemented a strong fiscal effort so far, and the new coalition looks committed to further consolidation in the 2016 budget," DBRS's McCormick said. "However, fiscal slippage is a risk and the high debt burden leaves the country exposed to shocks." (Reporting by Marc Jones and John Geddie, editing by Larry King)

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