S&P Cuts Italy’s Credit Rating To Two Levels Above Junk (Jul 2013)

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Source: Bloomberg – Italian, Spanish Bonds Fall After S&P Cuts Italy’s Credit Rating

Notable excerpts:

Italian government bonds declined for a second day after Standard & Poor’s cut the nation’s credit rating, citing a weakening of the country’s economic prospects.

The nation’s 10-year yield climbed the most in a week as the New York-based rating company also referred to the nation’s impaired financial system in its assessment released late yesterday. Spanish 10-year bonds dropped for a fourth day, the longest run of declines in almost two months. Italy’s cost of borrowing for one year rose as it sold 9.5 billion euros ($12.2 billion) of bills due in 367 and 160 days. Germany auctioned two-year notes.

“It’s quite normal that when you get news like that it puts immediate pressure on the market,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “The rating action reflects an overall picture, that things are still looking weak.

S&P cut Italy’s long-term credit rating to BBB, two levels above junk, from BBB+. The outlook on the rating remains negative, the company said in a statement.

While the rating is “bad news,” markets are “in an environment where investors are searching for yield and there’s a lot of cash in the system, and Italy will continue to benefit,” Danske Bank’s von Mehren said.

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