Italy’s Bond Rating Cut By Moody’s On Contagion, Funding Risks

via Bloomberg

Italy’s bond rating was cut and its negative outlook reiterated by Moody’s Investors Service as the euro area’s third-biggest economy faces higher funding costs and contagion risk from Greece and Spain.

The ratings company lowered Italy’s government bond rating by two steps to Baa2 from A3, citing a greater risk of a Greek exit from the euro and the Spanish banking system experiencing greater credit losses, according to a statement released in Frankfurt today. That makes Italy’s rating the same as those of Kazakhstan, Bulgaria and Brazil, according to data compiled by Bloomberg.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” Moody’s said. “Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

The euro fell toward a two-year low after the downgrade. The 17-nation currency bought $1.2189 as of 9:06 a.m. in Tokyo, from $1.2203 yesterday in New York, when it touched $1.2167, the least since June 2010.

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