The predictable battle lines were drawn at the G20/IMF meetings in Washington – most of the world urged Europe to do more to foster growth while Germany warned against letting up on austerity. The argument will doubtless be reprised today when euro zone finance ministers meet in Luxembourg.
Friday is European ratings day since EU rules took force requiring ratings agencies to say precisely when they will make sovereign pronouncements and to do so outside market hours.
Spanish government bonds have had a good run since the European Central Bank said it would protect the euro last year. But some analysts say the threat of a rating downgrade to junk remains an important risk.
Italy is expected to pay slightly more than it did a month ago to borrow for three years at today’s auction of up to 6 billion euros of a range of bonds. Yields edged up at a sale of 11 billion euros of short-term paper on Wednesday but there is no immediate cause for alarm. Three year-yields have dropped from 5.3 percent to around 3.3 since the ECB declared its readiness to buy the bonds of troubled euro zone sovereigns and Italy has shifted about 80 percent of its debt requirements this year, so is on track in that regard.
Steps forward and steps back…
The Netherlands’ fractured political class managed to unite enough last night to reach a deal on a 2013 budget which they say will cut the deficit to 3 percent of GDP as required by new EU fiscal rules. Failure could have undermined the EU fiscal pact before it was even born and undermined the efforts of Italy and Spain to pull clear of the debt supernova.
S&P on Monday cut Greece’s ratings to “selective default” but said it would consider the default “cured” after Greece completes its debt exchange. At that point, S&P plans on upgrading the country to CCC. Here is the full statement S&P issued alongside the decision:
Reporting for this post was done by the U.S. markets team in New York.
A number of Wall Street analysts have reacted to the historic downgrade of the U.S. AAA rating on Friday evening with a shrug. Some argue the ratings firm’s warnings about the U.S. debt deal offered an early signal, while others dismissed the action, questioning the company’s record of giving AAA ratings to housing assets that turned out to be toxic.