Spain's credit rating kept at investment-grade level

Last Updated: Thu, Oct 18, 2012 04:30 hrs

New York, Oct 18 (IANS/EFE) Moody's Investors Service left Spain's credit rating at investment-grade level, although it assigned a negative outlook due to persistent risks.

Moody's said Tuesday it decided to keep the Iberian nation's rating at Baa3 - one notch above "junk" - because the risk of it losing access to capital markets "has been materially reduced by the willingness of the European Central Bank to undertake outright purchases of Spanish government bonds to contain their price volatility".

The ratings agency, which had slashed Spain's rating by three notches in June, said the country "will likely apply for a precautionary credit line from the (recently established) European Stability Mechanism", which will cover all new bailout applications from euro-zone member state.

"This should in turn help sustain demand for Spanish government bonds by allowing the ECB to activate its Outright Monetary Transactions (OMT) program of secondary market purchases," Moody's said.

Moody's believes "this will help Spain maintain access to debt markets", Kathrin Muehlbronner, a Moody's vice president and senior sovereign-risk analyst, told EFE.

The yield on Spain's benchmark 10-year bond fell early Wednesday, due in part to Moody's ratings decision, falling to 5.59 percent at the start of trading even as the yield on the equivalent German bond rose to 1.59 percent.

That meant Spain's risk premium - the extra return investors demand to hold the country's 10-year note compared with equivalent German debt - dropped to 400 basis points for the first time since April 4.



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