Egan-Jones’s Spain downgrade pushes euro to fresh low
Egan-Jones Ratings has cut rating on Spain’s debt to B from BB-, the third downgrade on the country announced by the rating agency in a month.
The downgrade is based on deteriorating public finances and worries that the country will be faced with sizable payments to support its banking sector.
The Egan-Jones’s downgrade further into junk territory has pushed the euro to its weakest level since July 2010.
Peter O’Flanagan, head of foreign exchange trading at Clear Currency, said: “The lesser known, independent ratings agency tend to be ahead of the curve for downgrades.”
Following the announcement, the euro fell to fresh lows against the US dollar and also pulled GBP/USD down, as the US currency benefited from its safe haven status.
“The Spanish 10-yr yield pushed above 6.5%, increasing the cost of their debt, with a German 10-yr bund yielding record lows of 1.342%. The Spanish economy is five times the size of the Greek one, which makes many think the struggling nation is too big to bail out,” he said.
Meanwhile, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings still consider Spain’s debt as investment grade, even if all three ratings agencies have a negative outlook on the country.
Last month, Standard & Poor’s cut its credit rating on Spain by two notches to BBB+ from A last month. The country has a A3 rating from Moody’s and an A from Fitch Ratings.