If anything, this probably says more about Moody’s than Spain, though still, no country likes to see its credit rating downgraded.
Moody’s Investor Service cut Spain’s credit to Aa1 from AAA on Thursday, removing the last of its highly-valued triple-A ratings but saying it did not expect to cut again soon thanks to efforts at fiscal reform.
Here’s the part to watch:
Moody’s said a key driver for the downgrade was the significant fiscal deterioration that Spain experienced and the challenges the government will face in reducing the budget deficit in an environment of only moderate economic growth.
The question is, as always, will the cuts actually improve the fiscal situation? So far, in Ireland, Greece, and elsewhere, the answer to that has been mixed at best. Even with fiscal reform, Moody’s may be forced back to the well. Spanish stocks are down just a touch, and 10-year yields are actually narrower this morning, further cementing the idea that this was priced in.