Italy downgrade has little impact

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Italy downgrade has little impact

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There was a muted response on Wednesday to Standard & Poor’s downgrading Italy because of concerns over its weak economic prospects and wider eurozone problems.

After the ratings agency lowered it by one notch to BBB and left its outlook negative, Italian government bond yields – that is the amount of interest Rome has to offer to attract investors – rose slightly.

Spanish, Greek and Portuguese yields also edged up.

With this downgrade S&P brings itself into line with the other two agencies Moody’s and Fitch, placing Italian debt just two steps above the non investment, or junk, level.

Analysts said as long as it remains above “junk” grade, investors are not forced by their own credit quality rules to sell. Also, two-thirds of Italian debt is held by a relatively diverse base of local investors, which tend to hold onto its bonds.

About a quarter of Italian debt is held by local insurance companies, pension funds, households and corporates.

Traders said comments on Tuesday by European Central Bank policymaker Joerg Asmussen indicating the bank would keep rates low for more than a year were also limiting the market reaction to the downgrade.