Credit rating agency Standard & Poor's has cut its credit ratings for both Portugal and Greece.
S&P lowered Portugal's credit rating by one notch to BBB-, saying debt restructuring may be a pre-condition for help from the EU's new bail-out fund.
S&P, one of the top three ratings agencies, said its decision reflected its concerns that terms to access the new European Stability Mechanism (ESM), agreed at an EU summit last week, would be to the detriment of creditors.
Investors fear that the bottom line of the new ESM, which comes into operation in 2013, means that they could see their investments restructured, either in terms of the amount they get repaid or the time they have to wait for repayment.
In either event, their investment in Portuguese government assets, primarily bonds, would be worth less.
S&P also downgraded Greece's credit rating deeper into junk status for the same reasons. It lowered Greece's rating two notches to BB- from BB+, and said it may lower its assessment again.
The news sent yields on Portuguese 10-year bonds to a new high of just over 8.2% this evening.
