S&P wonders if Spain may need bailout, but Madrid dreads Moody’s

If Madrid finally asks Brussels for a national bailout, it will make no impact on agency Standard & Poor’s risk grading of Spanish sovereign bonds, as it is the outcome most expected already by the markets. Either way, the junk category or no-investment rate could be avoided.

Moritz Kraemer, EMEA head of sovereign ratings at Standard and Poor’s, said in an interview with Reuters Television that the latest plans of the European Central Bank have transformed the environment. Its move into purchasing state debt in support of euro peripheral members has been decisive to improve credit access for Spain.

So much so, that a bailout for the country looks now just as one of the options for the Spanish government, not a necessity, Kraemer suggested.

On Thursday, the Spanish Treasury offered a small €859 million auction of 10-year bonds. Demand and costs were better than in previous operations, with average interests at 5.66 percent or almost 1 percentage point lower than in August 2.

Citigroup, as quoted by FT’s Alphaville, opined that “similar outcomes from the bond and T-bills auctions in coming weeks could mean that the Spanish authorities have covered almost 90 percent of their funding needs for the year. This could reduce the chances of a bailout request ahead of the all important EU summit on October 18.”

Nevertheless, “with a BBB+ rating and negative outlook, S&P isn’t the agency the markets are most worried about,” analysts at Banco Santander remarked today, “but Moddy’s, which will determine whether Spanish sovereign bonds remain at investment grade when the conditions over the bailout have finally disclosed.”

Asset management house Nordkapp in Madrid argued that Brussels should do “whatever it takes” to help Spain and Italy exit their economies’ recessions without rescues.

Nordkapp’s Pablo Díez said bailouts “would push those countries into the corner, and France and Germany would have to face the tensions this could spark. Already car sales have dropped by 4.7 percent in both core euro countries, but unfortunately politicians seem to be the last people to acknowledge the size of our crisis.”

About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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