Spain is less likely to need a sovereign bailout now than it was in October as funding costs have fallen since then, Moody’s Investors Service said.
Spain’s funding costs have declined since the European Central Bank last year unveiled a debt-purchase program on secondary markets for sovereigns applying for aid from the European Union’s rescue-fund, known as ESM. Prime Minister Mariano Rajoy has said that while the program is useful, his government will seek to avoid using it.
The yield on Spain’s 10-year benchmark bonds was at 4.74% midday in Madrid, about 300 basis points lower than its euro-era high of July 25, before ECB President Mario Draghi first pledged to hold the euro together. The spread with similar German maturities narrowed to 3.47 percentage points.
Spain’s Treasury yesterday said it has covered 40 percent of its planned mid- and long-term funding for 2013.
Moody’s has a Baa3 rating on Spain, the lowest investment grade. Standard & Poor’s rates the country BBB-, the same level, while Fitch Ratings holds it at BBB, two levels above junk. Investors often ignore ratings, evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011.
Spain’s failure to honor budget-deficit goals has hurt the country’s credibility and justifies a negative outlook on the sovereign’s credit rating, experts wrote in a report published earlier today.
