Five eurozone sovereigns (but not France!) downgraded by Fitch on Friday…
-Belgium LT IDR downgraded to ‘AA’ from ‘AA+’; Negative Outlook; ST IDR affirmed at ‘F1+’
-Cyprus LT IDR downgraded to ‘BBB-’ from ‘BBB’; Negative Outlook; ST IDR affirmed at ‘F3′
-Ireland LT IDR affirmed at ‘BBB+’; Negative Outlook; ST IDR affirmed at ‘F2′
-Italy LT IDR downgraded to ‘A-’ from ‘A+’; Negative Outlook; ST IDR downgraded to ‘F2′ from ‘F1′
-Slovenia LT IDR downgraded to ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’
- Spain LT IDR downgraded ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’
(LT IDRs or long-term issuer default ratings are the ones you want, really) Brief summary of why Fitch has done it:
This one-notch revision was applied to Belgium, Italy, Slovenia and Spain, but not to Cyprus and Ireland, where their loss of market access had already been demonstrated by their need for official/bilateral support and is already reflected in their low investment-grade ratings. The downgrade for Cyprus, and the additional one-notch cuts for Italy, Spain and Slovenia (ie a total of two notches for each) reflect country-specific concerns primarily related to the banking sector in Cyprus and Slovenia; an adverse shift in the interest-rate growth differential and hence public debt dynamics in Italy; and a significantly worsened fiscal and economic outlook in Spain. A more detailed rating rationale can be found in six separate country specific press releases also being published shortly.
Further comments on Spain and Italy respectively. Fitch says that Italy avoided losing more of its credit rating because of the Monti government’s reforms, and (drumroll) the effect of the ECB’s three-year liquidity on bank demand for debt. With Italy back to selling six-month debt below two per cent you can say that again.
Main takeaway here for us is a second rating agency moving Italy closer to BBB credit territory – which would matter for non-bank investors who follow ratings requirements in bond indices, and so on. Just to go with something topical.
Related links:
Basel considers use of credit ratings in LCR shake-up – Risk
Sovereign ratings correlation like it’s the 1990s – FT Alphaville