Italy and Spain Downgraded – CDS Widens – What Did Markets Know?

October 7, 2011 1:12 pm

So, there was an enormous rally into the NFP numbers. Then when the numbers came out better than expected, futures flew higher and then faded throughout the morning.  The latest headlines are creating quite a stir:

  • Spain’s Credit Rating Two Levels on Spread of Euro Debt Crisis
  • Italy, Spain Have Ratings Cut by Fitch on ‘Euro Zone Crisis’
  • Fitch Downgrades Spain to AA- From AA+; Outlook Negative

It is funny. You would think that there was advanced knowledge of these as market reacted exactly as they should, once the information is available. Kind of strange isn’t it?


Below is the latest update of the CDS spreads for the Eurozone. Obviously with these downgrades, Span and Italy have widened. As I have said many times before, my biggest concern right now is France. They appear to be the biggest holder of the toxic debt from the PIIGS and it is very well known that most of their banks are insolvent.


Bloomberg Story:

Oct. 7 (Bloomberg) — Italy and Spain had their long-term issuer default ratings cut by Fitch Ratings, which cited factors including their vulnerability to the “Euro zone crisis.” Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ‘AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative.

Fitch also said it was cutting its estimate of Spain’s medium-term growth. The ratings company maintained a rating watch negative on Portugal, indicating the nation may still be cut. Portugal’s foreign and local currency long-term issuer default ratings are ‘BBB-.’ Fitch said it still intends to complete its review in the fourth quarter.


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