S&P’s cuts Italy on weak growth.

Italy’s credit rating was cut by Standard & Poor’s, the country’s first downgrade in five years, as Greece’s worsening fiscal crisis fans concern that contagion will engulf countries such as Spain and Italy.

S&P lowered its rating last night to A from A+, saying that weakening economic growth, a “fragile” government and rising borrowing costs would make it difficult to reduce Europe’s second-biggest debt load. The yield on Italy’s benchmark 10-year bond rose 3 basis points today to 5.619 percent, 385 basis points more than similar German debt.

The European Central Bank was forced to buy Italian and Spanish bonds last month after their yields surged to euro-era records on concern they’ll be the next victims of the two-year- old debt crisis that led to bailouts for Greece, Ireland and Portugal. Moody’s Investors Service is set to decide in the next month whether to cut ratings on Italy and Spain, and as Greece tries convince international creditors it deserves the next bailout payment to stave off a default.

“It’s a reminder that we’ve had the market in control but policy makers have been slow to think in any forward-looking context,” said Adrian Foster, head of financial-market research for Asia at Rabobank Groep NV in Hong Kong. “Policy makers across the euro zone have been well and truly asleep at the wheel for quite a while now and are only taking measures when the market pushes them to it.”

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell