Forex News – Euro weighed down by Italy’s downgrade
July 10, 2013 10:23 am
The euro remains weak a day after Italy’s sovereign credit rating was lowered by Standard & Poor’s. Europe’s third largest economy has been downgraded by one notch from BBB+ to BBB.
Italy is now two notches above junk status following the rating downgrade, with a negative outlook that suggests a further downgrade is possible.
In a statement the S&P cited concerns for the Italian economy which has been mired in the worst recession since the Second World War. The euro zone nation is heavily indebted, with more than 130 percent of its gross domestic product.
“The rating action reflects our view of the effects of further weakening growth on Italy’s economic structure and resilience, and its impaired monetary transmission mechanism,” S&P commented.
Italian Prime Minister Enrico Letta himself said the rating cut showed that Italy was still far from overcoming the long slump that took the euro to the brink of collapse in 2011.
S&P said the main problem behind slow growth was a lack of structural reform to put the Italian economy on a sustainable path toward growth.
“In our view, the low growth stems in large part from rigidities in Italy’s labor and product markets,” S&P said.
Italy’s borrowing costs have come down from crisis levels but remain higher than pre-crisis levels, with the yield on 10-year BTPs at around 4.4 percent. As a result of the S&P downgrade, short term Italian T-bills saw a rise in yields at a debt sale on Wednesday. The average yield on the 12-month bills rose to 1.078% from 0.962% at the previous auction in mid-June.
The S&P downgrade also presents a challenging backdrop for tomorrow’s longer term bond sale.
The euro remains weak a day after Italy’s sovereign credit rating was lowered by Standard & Poor’s. Europe’s third largest economy has been downgraded by one notch from BBB+ to BBB.
Italy is now two notches above junk status following the rating downgrade, with a negative outlook that suggests a further downgrade is possible.
In a statement the S&P cited concerns for the Italian economy which has been mired in the worst recession since the Second World War. The euro zone nation is heavily indebted, with more than 130 percent of its gross domestic product.
“The rating action reflects our view of the effects of further weakening growth on Italy’s economic structure and resilience, and its impaired monetary transmission mechanism,” S&P commented.
Italian Prime Minister Enrico Letta himself said the rating cut showed that Italy was still far from overcoming the long slump that took the euro to the brink of collapse in 2011.
S&P said the main problem behind slow growth was a lack of structural reform to put the Italian economy on a sustainable path toward growth.
“In our view, the low growth stems in large part from rigidities in Italy’s labor and product markets,” S&P said.
Italy’s borrowing costs have come down from crisis levels but remain higher than pre-crisis levels, with the yield on 10-year BTPs at around 4.4 percent.
As a result of the S&P downgrade, short term Italian T-bills saw a rise in yields at a debt sale on Wednesday. The average yield on the 12-month bills rose to 1.078% from 0.962% at the previous auction in mid-June.
The S&P downgrade also presents a challenging backdrop for tomorrow’s longer term bond sale.
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