Moody’s: Spanish debt could be junk in three months

Moody’s has downgraded Spain’s credit rating by three notches to Baa3 from A3, just above junk status, and placed it on review for further possible downgrades.

The ratings agency also warned last night that Spanish debt could be relegated to junk status within three months.

Moody’s said Spain’s decision to borrow €100bn (£80bn) from other eurozone countries to bail out its banks will “further increase the country’s debt burden, which has risen dramatically since the onset of the financial crisis”.

Spanish benchmark 10-year bond yields have continued to rise this week despite the €100bn bailout announced over the weekend, rising to 6.9% this morning to set a new euro-era high.

Moody’s said the Spanish government had “very limited” access to financial markets.

“The Spanish economy’s continued weakness makes the government’s weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years,” Moody’s said.

Moody’s also downgraded the credit rating of Cyprus to Ba3 from Ba1, placing it three levels below investment grade. It cited “the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the likely amount of support the government may have to extend to Cypriot banks”.


This article was first published on Investment Week


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