Moody’s ratings agency announced today that it is placing Spain’s Aa2 rating on review for possible downgrade. Spain’s current classification is the same as Italy’s and may be downgraded by one notch Moody’s said.
The news was a blow to the Euro which fell broadly after the news early in the European session, amid mounting concerns that the E.U’s efforts to contain the debt crisis to smaller countries like Greece or Portugal may no longer be feasible and the risk of debt contagion is rising.
Spain’s region’s have outstanding debt of 121 billion euros, which amounts to 11 percent of overall GDP. This is a record high according to Spain’s central bank data.
Spain, the euro region’s fourth-largest economy, is trying to rein in a surge in borrowing costs to convince borrowers that it will not follow the path of Greece and Portugal. However, this is hard to believe when Spain’s 10-year bond yields breached 6 percent rising for three days straight. This morning, the 10-year bond yield reached as high as 6.15 percent. Euro fell against the Dollar to 1.4255 early in the European session from an Asian high of 1.4362. EURJPY fell to a low of 110.58.