Moody's Investors Service cut Portugal's long-term government bond ratings by four notches to junk territory on Tuesday, citing the risk is growing that Portugal will require a second round of official financing before it can return to the private market.
The nation's long-term government bond rating now was cut to Ba2, which is two levels into junk, and assigned a negative outlook, meaning further downgrades were possible.
Moody's said in its statement that the first driver informing Tuesday's downgrade of Portugal's sovereign rating is the increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter.
Moody's also expressed its concerns that Portugal will not achieve the deficit reduction target due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.
Moody's downgrade followed similar moves by its peers Fitch Ratings and Standard & Poor's Ratings Services, who currently rate Portugal at BBB-, the lowest investment-grade level and two notches above Moody's new rating.