Market chatter: S&P, you’re late (Spain already gets AA+ treatment)

S&P has upgraded Spain’s credit rating for the first time since stripping the country of its AAA grade in 2009, increasing its assessment to BBB from BBB- and saying the outlook is stable. But ten-year Spanish bond yields stay at 3.004% following last week’s auction, while the U.S. benchmark 10-year note yield, was up 1.5 basis points at 2.550%, according to Tradeweb. A BBB player is getting more or less the same treatment in the market as a AA+.

“Rating agencies arrive late,” IG MARKETS’ Daniel Pingarrón thinks. “They have very extensive review periods. For instance, it took S&P six months since last time it evaluated Spain’s debt. In the meanwhile in this periods, the agency doesn’t assess anything.” There is a mismatch between agency’s statements and investors’ thoughts. “Spanish rating is far below profitability it’s really giving, actually very close to AAA and closet o countries like France and the USA. Fear to Spanish debt is gone, and for this reason what agencies says doesn’t matter”  explains the analyst.

Some analysts don’t term S&P overdue as the agency appreciates it long after markets moves. This organizations have a suffer from questioned credibility after they seemed unable to anticipate events and maintained for long terms ratings upper than deserved.Pressures and political reason used to lie behind these delays. That’s why now this agencies move forward really prudently. Markets have underperformed and gone ahead of agencies, one more time.

“Debt markets run a rally prompted by new ECB monetary stimulus prospects. Norway is financing with similar interest rates and better rating than Spain but it has nothing to do as it has a different currency and the Eurozone is focusing on posible QE.” said Renta 4 research head, Natalia Aguirre. Spanish, Italian, Portuguese and even Greek bonds’ appreciation and the resulting profitability drop is closely link to the following circumstances:

i)               ECB support to Euro in 2012 summer when Draghi stated the bank “do whatever is required” to sabe the currency. Investors believed, therefore,  they wouldn’t let fall any country and their debts were assured.

ii)              Expansive monetary policy carried out in the UK, the US and Japan. Market makers invested relevant amounts of this liquidity in European peripheral bonds that gave higher yields and were assured by ECB.

iii)             Reforms undertaken and implemented in the last two years by peripheral governments  to offset large shortfalls and reduce debt growth pace.


“Profitability decline in Spanish bonds is related to market factors rather than somewhat limited country’s solvency improvement” states Link research head, Juan José Figares. Public deficit is about 6.5% and debt approaches 100% GDP. Countries whose debt holds A rating, despite fiscal soundness superior to Spanish’s, didn’t count on markets help with massive debt purchase to reduce interest rates.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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