THE YIELD ON Portuguese ten-year bonds rose to one of the highest ever for a eurozone country today, following an overnight downgrade by the credit ratings agency Standard & Poor’s.

Even as EU leaders attending a summit in Brussels signed off on a “comprehensive package,” Portugal’s financial jitters worsened. The country’s ten-year bonds were cut by two notches to a BBB rating on Thursday night, causing the yield to rise above 8 per cent – one of the highest since the eurozone was established, reports RTÉ.

Portugal is the latest eurozone country to feel the glare of the international spotlight as it undergoes a period of economic and political turmoil; the country’s government collapsed on Wednesday after the opposition refused to vote in favour of proposed austerity measures. The German Chancellor Angela Merkel and the head of the European Central Bank Jean-Claude Trichet have both stressed that the country must continue to strive towards its fiscal targets, however it was made clear that the EU could step in if needed:

“If Portugal asks for help, then it would be assumed that this would happen shortly, and in that case the rescue shield would be enough,” said Jean-Claude Juncker, the prime minister of Luxembourg and the main spokesman for the group of countries that use the euro.

Portugal’s crisis took the shine off the second and final day of the EU summit. Leaders put the final touches on an agreement to set up a permanent €500 million bailout fund to replace the temporary one that expires in 2013, and new rules for closer economic cooperation to prevent more crises. They have also boosted the temporary bailout fund so it can lend its full €440 billion allotment, instead of keeping some of that back as reserves to ensure a top bond rating. Countries bailed out after 2013, meanwhile, will get lower interest rates on emergency loans.

The markets have reportedly shrugged off the debt downgrade, however: market analyst for forex.com Kathleen Brooks is quoted in the Telegraph as saying: “Even though Portugal is without a government, has suffered multiple sovereign debt downgrades and is on the cusp of a financial bailout, its plight is having little effect on asset markets … (because) the expected size of a Portuguese bailout is €70bn-€80bn, which for a €11 trillion economy like the eurozone’s is pocket change.”

Additional reporting by AP