Portugal was just downgraded by Moody's to junk status:

Moody’s cut its rating on Portugal’s long-term government bonds to a non-investment-grade rating of Ba2 from Baa1 and said the outlook was negative, suggesting more downgrades lie in store.

The ratings agency cited the risk that Portugal will need a second bailout before it can tap the bond markets again, and that private sector lenders will have to share the pain.

It also warned that Portugal might fall short of the financial targets it worked out with the European Union and the International Monetary Fund under the terms of its bailout because of the “formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.”

Greece was told by S&P that their new bail out plan, simply because they are rolling over debt to a longer term repayment schedule, is a sovereign default de facto.

Even the United States has been scolded and threatened by credit rating agencies.

One of the big fears is the European crisis spreads and creates contagion. Seems the credit ratings agencies are determined to make that happen.

Yet the credit default swaps, already trade at junk status. Forbes literally compares the never ending credit ratings agencies threats and downgrades to Whac-A-Mole. About right.

Bear in mind credit ratings agencies had a major role in the financial crisis, exposed for slapping AAA ratings onto bogus CDOs, CDSes yet there have been no reforms for the industry.

Bloomberg has the reasons for this latest downgrade:

The reductions stem partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said today in a statement. There is also “the increasing possibility that private sector creditor participation will be required as a pre-condition,” the ratings company said.