Portugal Hasn't Requested A Bailout.... Yet, & How To Trade It (EWP, STD)

Portugal hasn't requested a bailout, the European Commission said yesterday, but market forces and speculators believe that it will happen, sooner rather than later. "I haven't seen, heard or sensed any sign coming from the Portuguese authorities [of a bailout request]," a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. "The commission is ready to look into any request from any member state, but at this time the commission hasn't received any request from any additional member states," he said. The Eu said that it is in regular contact with the Portuguese government about its financial health. The country is on the verge of asking for a bailout, as credit default swaps and yields on government debt rise above record rules. Moody's downgraded Portuguese debt this week, saying the country could be in need for a bailout from the European Financial Stability Facility (EFSF). "The limited migration of the rating to Baa1 (and not lower) in today's action, reflects Moody's assessment that assistance would be provided by the other members of the euro zone if Portugal needs financing on an expedited basis before it can obtain funds from the European Financial Stability Facility (EFSF)," Moody's said in a statement. This comes just a couple of weeks after former Prime Minister Jose Socrates quit his job after the government could not reach an agreement on austerity measures. Rehn had said that there were no formal requests to use the EFSF from Portugal, and Portugal's finance ministry said it could meet all its financing needs. If traders believe that Portugal is not going to ask for a bailout soon, then the speculation is that credit quality will continue to decline, and traders may want to look at shorting Spanish banks with Portuguese debt exposure, such as Banco Santander STD, or perhaps shorting the iShares Spanish ETF EWP.