LONDON (Dow Jones)--Moody's Investors Service Inc. Thursday downgraded Spanish government debt to Aa2 with a negative outlook from Aa1 previously, triggering sharp declines for the euro and European bond prices in early European trading.
The news fanned concerns in European financial markets that high-debt countries in the euro-zone could bring the 17-currency region closer to a new debt crisis. Earlier this week Moody's downgraded Greek government debt.
The single currency lost 0.5% of its value against both the Swiss franc and the dollar to hit the day's low at CHF1.2882 and $1.3804, respectively. The common currency also chalked up hefty losses against the Japanese yen, shedding 0.4% to trade at the day's low of Y114.47 immediately after the announcement.
Spanish government bond prices fell along with bonds issued by other governments with weak public finances, including Portugal and Ireland. Prices for German and U.K. government bonds, deemed as "safe-havens," rose as investors turned away from higher yielding but riskier debt issued by states along the euro-zone periphery.
European debt insurance costs for countries and companies were higher in early trade Thursday after Spain's sovereign credit rating was downgraded.
The ratings agency lowered its rating on the southern European country to Aa2, warning further downgrades were still possible as the costs of bank restructuring and slow economic growth could limit the government's ability to improve the country's financial situation.
"No big surprise here that Spain has been downgraded, and there will likely be more downgrades to come," said analysts at ING.
At 0740 GMT, the iTraxx Crossover index, which investors can use to buy or sell default protection on 50 mostly sub-investment grade European corporate borrowers, was five basis points wider at 188/190 basis points, according to data-provider Markit.
Moody's said the downgrade reflected the high costs associated with restructuring the country's banking system, which will lead to an increased public debt ratio, and added that risks to government finances remain skewed to the downside.
"The eventual cost of bank restructuring will exceed the government's current assumptions, leading to a further increase in the public debt ratio," the ratings agency said.
Moody's also cited continued concerns over the ability of the Spanish government to generate sustainable and structural improvement in general government finances because of limited control over the regional governments' finances and expectations of slow economic growth.
The ratings agency warned that further downgrades could come if the public debt ratio increases more rapidly than expected and if the country misses fiscal targets in 2011.
The Spanish government objected to Moody's views, calling it too hasty and said it included assumptions on funding requirements for local banks that are likely to be too high.
Soledad Nunez, head of Spain's debt agency, told Dow Jones Newswires that she is surprised that Moody's, which already had Spain's debt under negative watch, has gone ahead with the downgrade just before the Bank of Spain is slated to present details on its estimates on bank recapizalization needs, at around 1700 GMT Thursday.
"They could have waited to see what rationale the Bank of Spain has for its estimates," said Soledad Nunez, head of Spain's debt agency.
The government has said the cost of recapitalizing the banks would be a maximum of EUR20 billion, but Moody's said it may be closer to EUR40-EUR50 billion--compared with a previous estimate of EUR17 billion--and that in a more stressed scenario, they could soar to approximately EUR110 billion-EUR120 billion.
Moody's asserted that the country's debt sustainability is not under threat and commended the government's efforts for addressing fiscal issues.
At 0741 GMT, the euro was trading at CHF1.2897 against the franc and at $1.3817 against the greenback, while it was worth Y114.45 against the Japanese yen.
The news fanned concerns in European financial markets that high-debt countries in the euro-zone could bring the 17-currency region closer to a new debt crisis. Earlier this week Moody's downgraded Greek government debt.
The single currency lost 0.5% of its value against both the Swiss franc and the dollar to hit the day's low at CHF1.2882 and $1.3804, respectively. The common currency also chalked up hefty losses against the Japanese yen, shedding 0.4% to trade at the day's low of Y114.47 immediately after the announcement.
Spanish government bond prices fell along with bonds issued by other governments with weak public finances, including Portugal and Ireland. Prices for German and U.K. government bonds, deemed as "safe-havens," rose as investors turned away from higher yielding but riskier debt issued by states along the euro-zone periphery.
European debt insurance costs for countries and companies were higher in early trade Thursday after Spain's sovereign credit rating was downgraded.
The ratings agency lowered its rating on the southern European country to Aa2, warning further downgrades were still possible as the costs of bank restructuring and slow economic growth could limit the government's ability to improve the country's financial situation.
"No big surprise here that Spain has been downgraded, and there will likely be more downgrades to come," said analysts at ING.
At 0740 GMT, the iTraxx Crossover index, which investors can use to buy or sell default protection on 50 mostly sub-investment grade European corporate borrowers, was five basis points wider at 188/190 basis points, according to data-provider Markit.
Moody's said the downgrade reflected the high costs associated with restructuring the country's banking system, which will lead to an increased public debt ratio, and added that risks to government finances remain skewed to the downside.
"The eventual cost of bank restructuring will exceed the government's current assumptions, leading to a further increase in the public debt ratio," the ratings agency said.
Moody's also cited continued concerns over the ability of the Spanish government to generate sustainable and structural improvement in general government finances because of limited control over the regional governments' finances and expectations of slow economic growth.
The ratings agency warned that further downgrades could come if the public debt ratio increases more rapidly than expected and if the country misses fiscal targets in 2011.
The Spanish government objected to Moody's views, calling it too hasty and said it included assumptions on funding requirements for local banks that are likely to be too high.
Soledad Nunez, head of Spain's debt agency, told Dow Jones Newswires that she is surprised that Moody's, which already had Spain's debt under negative watch, has gone ahead with the downgrade just before the Bank of Spain is slated to present details on its estimates on bank recapizalization needs, at around 1700 GMT Thursday.
"They could have waited to see what rationale the Bank of Spain has for its estimates," said Soledad Nunez, head of Spain's debt agency.
The government has said the cost of recapitalizing the banks would be a maximum of EUR20 billion, but Moody's said it may be closer to EUR40-EUR50 billion--compared with a previous estimate of EUR17 billion--and that in a more stressed scenario, they could soar to approximately EUR110 billion-EUR120 billion.
Moody's asserted that the country's debt sustainability is not under threat and commended the government's efforts for addressing fiscal issues.
At 0741 GMT, the euro was trading at CHF1.2897 against the franc and at $1.3817 against the greenback, while it was worth Y114.45 against the Japanese yen.
Aucun commentaire:
Enregistrer un commentaire