The Buzz

All markets and investing news all the time

Spain's future brightens as it dodges downgrade bullet

October 17, 2012: 2:18 PM ET

Moody's refrained from slapping Spain with a junk rating, based on an assumption that Madrid will tap the ESM and reflecting progress on fiscal and banking reform. The decision was a pleasant surprise for investors.

Spain's future is looking a little brighter than it has in recent weeks, after Moody's left the troubled country's credit rating in investment-grade territory.

The decision to refrain from slapping Spain with a junk rating was based on an assumption that Madrid will tap Europe's bailout fund, the European Stability Mechanism, and reflects progress the country has made on fiscal and banking reforms, said Moody's late Tuesday.

It was also a pleasant surprise for investors.

"By passing on the opportunity to downgrade Spain's rating to junk, Moody's removed one major uncertainty from the financial markets, and investors around the world have responded positively," said Kathy Lien, managing director of foreign exchange strategy for BK Asset Management.

Related: Leaders meet at EU summit on eurozone's future

The euro broke through the $1.30 level Wednesday and is trading at a one-month high versus the dollar, while the yield on Spain's 10-year bond fell as low as 5.462%, the lowest since early April. Spain's benchmark IBEX 35 index jumped more than 2% Wednesday.

Meanwhile, the cost of insuring Spanish government debt against default dropped to a 15-month low, according to data from Markit.  The spread on five-year Spanish credit default swaps, narrowed to  277 basis points from 347 basis points.

While Spain avoided a downgrade by Moody's, the rating agency still maintains a negative outlook on the country given the challenges that lie ahead.

Spain has yet to formally ask for a bailout, but expectations are that it will soon seek a line of credit from the ESM, which would allow the European Central Bank to start buying its bonds.

Posted in: , , , , , ,
  • 10-year yield slumps to record low

    Click on the chart for more on bonds and rates

    Investors who are on the hunt for yield may want to avert their eyes from long-term Treasuries.

    The yield on the 10-year note slid to a record low of 1.44% Monday morning, as ongoing signs of weak global growth kept the flight to safety alive and well. Investors tend to snap up Treasuries during times of uncertainty because they're backed MORE

    - Jul 16, 2012 11:30 AM ET
Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! Yes, Urban Outfitters may be finally turnings things around. But $URBN up 17%? Seems a bit excessive, no?
Most Popular
Powered by VIP.