Skip to main content

Asian markets drop on Spain ratings cut

By Kevin Voigt, CNN
June 14, 2012 -- Updated 0417 GMT (1217 HKT)
STORY HIGHLIGHTS
  • Asian markets opened lower on the news of Spain's credit downgrade
  • Moody's has cut the rating of Spain government bonds to the edge of "junk" status

Hong Kong (CNN) -- Asian markets opened lower on the news that credit ratings agency Moody's has cut the rating of Spain to the edge of "junk" status.

All major Asian indices fell in early trade, with Hong Kong's Hang Seng index was down 0.8%, Japan's Nikkei fell 0.7% and Shanghai Composite was down 0.6%.

The Moody's downgrade was the latest sign that investor mood has not been buoyed by Madrid's Saturday request for up to €100 billion ($125 billion) from the European Union to recapitalize its ailing banks. Moody's cited the bailout request in its downgrade, saying "this will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis."

Moody's rating for Spain's government bonds dropped three notches to Baa3 from A3, one step above junk status, which is considered a "highly speculative" investment. Such a move would only add to Spain's woes, as the pool of eligible investors is reduced. Many institutional investors, such as government pension funds, are forbidden to invest in junk-rated bonds.

Spain struggling to stay afloat
Spain's borrowing cost reaches high
Spain faces more bank downgrades

Spain also has "very limited financial market access" to attract purchasers of new bond issues to pay for the nation's mounting debt woes, Moody's said. The yield on 10-year Spanish bonds rose to 6.83% this week, the highest level since the euro was introduced in 1999, raising the borrowing costs for the world's 12th largest economy to dangerous levels.

Spain's debt and banking troubles stem from speculative property investments that imploded with the 2008 credit crisis. Now Spain, going through its second recession since 2009, has an unemployment rate of 25%.

"If you were to see a collapse of the sovereign debt market in Spain and Italy, you are talking about a Europe-wide banking crisis," Robert Shapiro, chairman of Sonecon and an adviser to the International Monetary Fund, told CNN. "After all the largest banks in France and Germany alone hold $600 billion in Spanish sovereign debt. They hold even more Italian sovereign debt."

Italy sold 6.5 billion euros of one-year notes at an average yield of 3.97% this week, compared to 2.34% last month, CNNMoney reports.

The Spain downgrade was the latest blow in a series of crises that has kept the 17-nation European Monetary Union in an existential drama for the past two years. Greece, whose debt woes sparked the crisis in 2010, goes to the polls on Sunday in what could amount to referendum whether the nation will remain with the euro -- and accept tough austerity measures demanded by the European-led bailout -- or go it alone.

"Greece, I think, most economist think really can't be rescued, that what we're really seeing now is an attempt to set up an orderly mechanism for the exit of Greece from the eurozone," Shapiro said. "That will be a catastrophe for Greece, but if other arrangements are made it could preserve the eurozone."

CNNs Irene Chapple and CNNMoney's Ben Rooney and Catherine Tymkiw contributed to this report

ADVERTISEMENT
Part of complete coverage on
August 27, 2013 -- Updated 1943 GMT (0343 HKT)
German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
September 4, 2013 -- Updated 1528 GMT (2328 HKT)
The G20 is held in Russia but, amid disagreements over Syria, can anything be done? John Defterios investigates.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
June 7, 2013 -- Updated 1750 GMT (0150 HKT)
The euro club has suffered major shockwaves but its newest member has emerged as an economic star. What;s behind Estonia's success?
May 29, 2013 -- Updated 1323 GMT (2123 HKT)
The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
May 14, 2013 -- Updated 1326 GMT (2126 HKT)
The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.
The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
May 27, 2013 -- Updated 0256 GMT (1056 HKT)
Europe's competitiveness is threatened as manufacturing companies scrambling to find enough skilled engineers.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
May 2, 2013 -- Updated 1044 GMT (1844 HKT)
As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
April 26, 2013 -- Updated 1210 GMT (2010 HKT)
As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
April 25, 2013 -- Updated 1656 GMT (0056 HKT)
Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
March 25, 2013 -- Updated 1355 GMT (2155 HKT)
The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests.
March 25, 2013 -- Updated 1815 GMT (0215 HKT)
Cyprus will "step up efforts in areas of fiscal consolidation." Where have we heard that before? Oh yes. Greece.
March 23, 2013 -- Updated 0139 GMT (0939 HKT)
The Cyprus debt crisis is being felt by the banks but also by the people who work at them. Nick Paton Walsh reports.
March 22, 2013 -- Updated 0010 GMT (0810 HKT)
CNN's Nick Paton Walsh reports on a Russian hotel maid caught up in Cyprus' financial crisis.
March 18, 2013 -- Updated 1608 GMT (0008 HKT)
Never underestimate the capacity of the Eurozone to shoot itself in both feet, says CNN's Richard Quest.
February 21, 2013 -- Updated 1603 GMT (0003 HKT)
Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.
ADVERTISEMENT