The only thing standing between Portugal's insanely decoupled low bond yields and the ugly fundamental reality is a BBB rating from DBRS which enables The ECB to keep buying the nation's bonds. The problem is, pressure is mounting on DBRS (the only 1 of 4 raters to maintain Portugal as investment grade) to drop the hammer... and Portuguese risk is rising.

And in response to these concerns, the last 2 days have seen the biggest surge in Portugal sovereign credit risk in 2 months...

As Reuters reports, pressures are building on Portugal's creditworthiness as its low-growth economy battles to contain high levels of government and corporate debt and amid banking sector strains, the head of sovereign ratings at credit agency DBRS said.

DBRS's BBB (low) rating has been a vital prop for Portugal, allowing its bonds to remain part of the European Central Bank's 1.7 trillion euro buying program and as eligible collateral for the Bank's unlimited and now free bank funding.

The rating, next due for review on October 21, carries a 'stable' outlook, giving Lisbon some breathing space, but Fergus McCormick told Reuters that the picture was deteriorating.

"Friday's Q2 GDP release (which showed growth at just 0.2 percent) raised our concerns about growth prospects, which appear to be slowing into the third quarter," he told Reuters in an interview.

"Therefore, the outlook remains stable, but pressures appear to be mounting from these various fronts," he added, also citing European Commission demands that an unwilling Lisbon implement more spending cuts.

DBRS's October review will come just a week after Portugal is scheduled to provide the Commission with a list of those new cuts to get its budget deficit back under 3 percent of GDP. Uncertainties over the make-up of those measures and their impact on the delicate political balance were a concern McCormick said, as was the possibility that more taxpayer money may be needed to prop up banks including Caixa Geral de Depositos and BCP.

"Will the far-left parties support these two initiatives? This is unclear."

DBRS's view is closely watched because it is the only one of the four ratings agencies recognized by the ECB to have an investment grade rank for Portugal.

It needs a rating of that category to qualify for the central bank's quantitative easing program and for the ECB to accept Portugal's bonds as loan collateral.

A downgrade could therefore cause havoc for Portugal's borrowing costs and its banks which rely heavily on the ECB's funding, and analysts warn it would almost inevitably trigger a significant market selloff.

As an interesting sidenote, we add that DBRS, whose grades are currently crucial for Portugal and Italy getting a range of support from the European Central Bank, said on Wednesday it had appointed a new head of its European sovereign ratings team.

Nichola James has been appointed co-head of sovereign ratings, alongside Fergus McCormick who also takes the role as chief economist.

James will be based in London and will manage DBRS's growing European team while New-York based McCormick, who has been head of sovereign ratings since 2010, will oversee countries outside Europe.

James joins DBRS from MUFG Group, where she spent the past six years as director, country risk team, EMEA. Prior to that, she was a senior manager/economist, for foreign exchange and fixed income sales and trading at Lloyds Bank. James holds BA and MA degrees from University College London and an MBA from Warwick Business School.  

Question is - was this move a response to a tap on the shoulder from Draghi et al. that the ratings should not be cut? If they do cut, of course, it will be time for a rule change at The ECB... or crisis looms...