prepare for crash - Moody’s downgrades Italy credit rating by three levels

[alok agarwal]

Moody’s downgrades Italy credit rating by three levels

   Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades on concern that chronically weak growth will make it difficult to reduce the region’s second-largest debt while fallout from the region’s debt crisis boosts financing costs.
   Moody’s lowered Italy’s rating three levels to A2 from Aa2, with a negative outlook, the New York-based company said in a statement on Tuesday. The action comes after Standard & Poor’s downgraded Italy on September 20 for the first time in five years. Italy was last cut by Moody’s in May 1993.
   Moody’s also said that all European countries with ratings below the top mark of AAA may face downgrades as many euro-area governments are facing “a profound loss” in investor confidence as policymakers have failed to stop debt-crisis contagion. Italy’s borrowing costs have fallen from euro-area highs in August after the European Central Bank began buying its bond to stop the slide in the country’s debt.
   “All but the strongest euroarea sovereigns are likely to face sustained negative pressure on their ratings,” Moody’s said. “Consequently, Moody’s expects fewer countries below AAA to retain high ratings.” It added that “there are no immediate pressures that could cause downgrades for Aaa-rated countries.”
   Moody’s decision “was expected,” prime minister Silvio Berlusconi’s office said in an e-mail. “The Italian government is working with the utmost commitment to meet its budget targets.”
   The yield on Italy’s 10-year notes rose 5 basis points 5.53% today, leaving the difference investors to hold Italian bonds instead of benchmark German bunds at 377 basis points. The cost of insuring Italian debt against default has more than doubled since the start of the year. The euro traded at $1.3291 at 9.53 am in Rome, down 0.4% on the day.
   Italy joined Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries whose credit rating has been cut this year. BLOOMBERG