Moody’s leaves Spain sovereign rating at investment grade

Reuters: Spain’s government dodged a bullet on Tuesday when Moody’s Investors Service affirmed its investment grade rating, assuaging widespread fears that the euro zone country would be cut to a junk rating.

Moody’s kept a Baa3 rating but assigned a negative outlook, leaving both the rating and the outlook in line with that of rival agency Standard & Poor’s, which rates Spain at BBB-minus. Fitch Ratings’ grade for Spain remains one notch higher at BBB but also with a negative outlook.

Spain has been ready to ask for euro zone help since the beginning of the month, European officials have told Reuters, with the most likely method being a precautionary credit line of around 50 billion euros triggering a potentially unlimited bond-buying programme from the European Central Bank.

But German reluctance to sign off on another bailout for a troubled euro zone country - the second for Spain after it obtained a 100-billion-euro credit line for its banks in June - has delayed a request.

A German official told Reuters on Tuesday it was not clear when Spain would ask, but said aides were laying the groundwork for such a move.

Moody’s said in a statement it believed that “the combination of euro area and ECB support and the Spanish government’s own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilise public debt over the next few years.”

“Specifically, Moody’s believes that the government will likely ask for an Enhanced Conditions Credit Line (ECCL) from the ESM (European Stability Mechanism) as a prerequisite for the ECB activating its OMT program in relation to Spanish government debt,” Moody’s said referring to the ECB’s new bond purchasing program.

Moody’s believes the ECB’s willingness to help with bond buying, reducing the volatility in Spanish government bond yields, will cut the risk that Madrid loses access to the market for its sovereign debt, at least for the foreseeable future.

Keeping access to debt markets for sovereign funding needs is key, a Moody’s analyst told Reuters on Tuesday.