Moody’s reinforces Spain’s low investment grade rating

Moody’s has confirmed it is keeping Spain’s credit rating at Baa3 with a negative outlook, the lowest level of investment grade, based partly on the prospect of the European Central Bank will make a move to buy Spanish bonds in order to contain the volatility afflicting the market.

The agency opted against lowering the country’s rating to junk level, based on a variety of positive indicators including the diminishing chance that Spain will lose access to the bond market.

The euro started to rally against the dollar after investors’ fears that Spain would be lowered to junk status were quashed by Moody’s reports. However the decision to keep the country on a negative outlook highlights Moody’s apprehension and the fact that the situation presents high risk “skewed to the downside”.

“The maintenance of market access is critical because the risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time,” the ratings agency said in a statement.

“Should any such factors lead the rating agency to conclude that the Spanish government had either lost, or was very likely to lose, access to private markets, then Moody’s would most likely implement a downgrade, potentially of multiple notches.”

Standard & Poor’s has also lowered Spain’s rating to the lowest level of investment grade with a negative outlook.