Risk premium falls below 400 basis points after Moody’s stay on rating

Spain’s risk premium fell back below 400 basis points on Wednesday after Moody’s Investors Service confirmed the country’s sovereign rating at just above junk status.

Moody’s said it believes the government will ask for a so-called Enhanced Conditions Credit Line (ECCL) from the permanent European Stability Mechanism (ESM) rescue fund, which would trigger purchases of Spain’s sovereign debt in the secondary market by the European Central Bank (ECB).

“Moody's believes the ECB's willingness to act to contain volatility in Spanish government bond yields will reduce the risk of loss of market access for the Spanish sovereign for the foreseeable future,” the ratings agency said late Tuesday

In afternoon trade, the spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent was down 38 basis points from Tuesday’s close at 394. The blue-chip Ibex 35 added to Tuesday’s gains, moving above 8,000 points.

Standard & Poor’s last week cut Spain’s credit rating by two notches to BBB-, just above junk status and equivalent to Moody’s Baa3. The outlook on both ratings is negative.