German government bonds are opening higher Thursday, taking cue from gains in US Treasuries post stellar 10-year Note auction and Moody’s decision to downgrade Spain. Moody’s downgraded Spain’s rating late Wednesday to Baa3 from A3, and has also placed it on review for possible further downgrade. Moody’s said that it expects to conclude the review within a maximum timeframe of three months. Moody’s added that Spain’s rating, as well as the ratings of other euro area countries, could be adversely affected if the risk of a Greek exit from the euro area were to rise further. The latest 3 notch downgrade of Spain by Moody’s to Baa3 plays catch-up with Fitch’s 3-notch move on June 7 to BBB, but leaves Spain’s rating just 1 notch above junk. In addition, the Moody’s downgrade now takes Spain out of the A basket by all the main 3 rating agencies, which is seen having implications on investment indicies. S&P is now lagging with its BBB+ (negative outlook) rating. Interestingly, Spain is now 2 notch below Ireland’s Ba1 (negative outlook) rating on Moody’s scale. Spain 10Y spread is 15bp wider so far.
EasyForexNews Research Team