On April 28, Fitch stripped the Kingdom of Spain of its triple-A rating. Standard & Poor’s followed 30 days later with a downgrade from AA+ to AA, having kicked the Kingdom off its untouchable triple-A pedestal back in January 2009.
And on Wednesday, Moody’s weighed in (emphasis ours):
London, 30 June 2010 — Moody’s Investors Service has today placed Spain’s Aaa local and foreign currency government bond ratings on review for possible downgrade.
Moody’s decision to initiate this review was prompted by (1) the deteriorating (short-term and long-term) economic growth prospects; (2) the challenges the government faces in achieving its fiscal targets; and (3) concerns over the impact of rising funding costs over the medium term. If at the conclusion of the review, Spain’s ratings are lowered, it would most likely be by one, or at most two, notches, according to Moody’s. The rating agency intends to conclude its review within a three-month period.
Also notable from the Moody’s statement:
In the short term, the government’s accelerated fiscal consolidation combined with the higher borrowing costs currently facing the government, consumers, and businesses will likely depress growth. From a longer-term perspective, it will take several years for the economy to adjust to the fallout from the collapse of the real-estate boom, to reduce the high level of private sector indebtedness to levels more in line with other EU countries, and to find new, internal sources of economic growth.
Moody’s own forecasts for Spain’s fiscal deficits are higher than the government’s targets. According to Moody’s projections, Spain’s debt-to-GDP ratio is likely to rise to about 80% by 2014.
The downgrade hit after the London markets had shut, but at Markit’s Otis Casey noted:
The announcement is not all that surprising considering that CDS for Spain hit record wides this week.
And according to Fitch’s CDS implied-ratings research, at current levels the market is actually pricing in a rating of BBB for Spain.
Related links:
Spain’s long, hot, refinancing summer – FT Alphaville
On sovereign risk and jamón ibérico – FT Alphaville
Spanish risk: let’s get regional – FT Alphaville
A Japanese casa for Spain – FT Alphaville