Moody’s to soon downgrade Spain? Priced in if so

Following the news from Spain last week on their budget and banking system, we are nearing a decision from Moody’s on whether to further downgrade Spain’s credit rating into junk territory from Baa3 currently. As usual, the marketplace has already anticipated this, if it were to occur, with the 5 yr Spanish CDS trading at 380 bps. It’s well below the record high of about 650 bps 2 days before Draghi came to the rescue but its higher than Ireland’s at 317 bps who has a credit rating of Ba1 from Moody’s, the 1st junk level below Spain. Also, Moody’s has the same Ba1 rating for Hungary that has the same CDS level as Spain.

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