Fitch downgrades Spain three notches

Fitch has cut’s Spain’s credit rating by three notches to BBB as estimates for the size of the bailout it needs balloon.

The rating is just two notches above junk status in the Fitch ranking scheme.

The credit rating agency also estimated the country’s banks may need as much as €100bn in rescue funds and said the country’s ability to honour its debts has weakened. However, an IMF report due out on Monday is expected to show Spanish banks need just €40bn, according to the BBC.

Standard & Poor’s said it estimated banks will need €60bn but if it is nearer the €80 to €112bn mark then they will need EU aid.

In the past, a ratings downgrade for Greece, Ireland and Portugal was promptly followed by an IMF rescue package.

The move will make it more difficult for Spain to borrow on the world’s financial markets however a Spanish bond auction raised more than expected yesterday. There was strong demand for medium and long-term bonds, which raised €2.1bn albeit at a higher interest rate. The yield on 10-year Spanish bonds was 6.044%, a climb from the 5.743% from the last auction two months ago.

The beleaguered state of Spain’s debt pile and its banking system is no secret so analysts maybe questioning why this downgrade has not come sooner.

 

This article was first published on Investment Week

 

 

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