Moody’s Spain Verdict Due
Price action overnight was dominated by quarter-end flows and, in Japan’s case, flows associated with the end of the fiscal half-year. Spain remains the centre of attention with bank stress test results due to be published today. There is as yet no firm indication of what time the announcement will be made. We note however that the euro is not likely to be hugely affected given that the EFSF has already agreed to provide “up to” EUR 100bn in funds specifically to fund the recapitalization effort. The capital shortfall unveiled today is expected to be in the region of EUR 60 bn – comfortably within EFSF tolerance and therefore Spain’s primary market issuance plans going forward should not be affected. Additionally, Moody’s is conducting a review of Spain’s sovereign rating and has promised a verdict by the end of September. Today being the last working day of the month, we are braced for a possible announcement just before the US close this evening. Even a single-notch downgrade would be enough to push Spain’s rating into junk territory. The euro’s reaction is again likely to be muted however – as any resulting forced selling from bondholders on Monday would likely be seen as bringing forward a full-blown Spanish aid request.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank