Spain Retains Investment Grade Credit Rating From Moody’s

Spain kept its investment grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access because of the European Central Bank’s willingness to buy the nation’s debt.

Moody’s assigned a negative outlook on the Baa3 sovereign debt, one step above junk, as it concluded the review for a possible further downgrade of Spain’s rating that it had initiated in June, the New York-based company said in a statement yesterday.

Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as being rated below investment grade. Standard & Poor’s has a negative outlook on its BBB- rating, also one step above junk, and Fitch Ratings has Spain at BBB, two levels higher than junk.

The willingness of the ECB to purchase Spain’s government bonds in the secondary market “is an important step” for Spain to maintain access to credit markets, Kathrin Muehlbronner, a Moody’s analyst in London, said in a telephone interview.

She said she expects Spain to request a precautionary credit line from the European Stability Mechanism, the region’s permanent rescue fund “to be able to activate the ECB purchases in the secondary market.”

Spanish Banks

Creditworthiness concerns have grown since Prime Minister Mariano Rajoy requested as much as 100 billion euros ($131 billion) in European Union aid to shore up Spanish lenders amid signals the nation may miss its budget-deficit goals. S&P downgraded Spain on Oct. 10, saying it doubted the loans will be mutualized among euro-region nations.

Moritz Kraemer, S&P’s head of sovereign ratings for Europe, the Middle East and Africa, said on Oct. 12 that “confusion” and a “two step forward, one step back kind of environment” in Europe contributed to the company’s downgrade decision.

The yield on Spain’s 10-year benchmark bond fell one basis point to 5.8 percent yesterday in Madrid, compared with an intraday record of 7.75 percent on July 25, a day after Spain signed a document fixing the conditions for the bank aid.

Rating cuts have sometimes been followed by a decline in bond yields. In the U.S., Treasuries and stocks have rallied since Standard & Poor’s stripped the nation of its AAA grade in 2011.

Ten-year Treasury yields are down from 2.56 percent when S&P cut the U.S. one step to AA+ on Aug. 5, 2011. The yield was at 1.72 percent yesterday and fell to 1.379 percent on July 25, the lowest on record. The S&P 500 Index has jumped 21 percent.

French Yield

The yield on France’s 10-year government bond fell to 2.211 percent yesterday from 3.075 on Jan. 13, when the country was cut by S&P to AA+ from AAA.

In Spain, investors are shunning the nation’s securities as Rajoy weighs a second bailout amid a deepening recession. Rajoy has held off on a decision about whether to request ECB and EU bond-buying to lower borrowing costs. Deputy Prime Minister Soraya Saenz de Santamaria said on Oct. 11 that Spain first wants a consensus among European governments and more details on the attached conditions.

Treasury data show foreign investors’ share of Spanish bonds dropped to 34 percent in August from 50 percent in December. The Bank of Spain said Sept. 28 that capital flight accelerated in the seven months through July as non-residents withdrew 95.7 billion euros of stock and bond investments, compared with 21.9 billion euros a year earlier.

Full article:

http://www.bloomberg.com/news/print/2012-10-16/spain-retains-investment-grade-credit-rating-from-moody-s.html

PS.  Doubt problems will go away any time soon, all about emotions in regards to being on track, then again, will there ever be a return to some sustainable growth for many European countries, probably, years and years away....and it will take more than austerity and lots of help from their central bank.  Lots of other major countires also got to deal with their own domestic problems.  All things will pass in time.  Major panic over.  Walls of worry continues, means lots of volatility and a market casino that can dip and continue that way yet, seemingly, it is on an uptrend that has dips buy more than likely set new highs along with commods, higher...with so much QE to infinity and central bank help, it is probably guaranteed, now when will market casino try to price in things like inflation, deflation, recession, etc. along with the eventual stoppage of QE?

Cheers,

Dave.