It was beautiful while it lasted. Moody´s lowered Greece´s credit rating to just one level above default, from Caa1 to Ca, and put eight of their banks up for review. The cut, combined with the bad news related to the United States Congress raising the American debt ceiling and doubts around the execution of the second Greek recovery plan were the news stories that led investors to once again start selling off all that that has to do with peripheral European countries.
The respite that investors gave to the markets during the past few weeks has dissipated. The feeling that cuts to credit ratings will affect not only the Greek government was translated yesterday in a rally in the Spanish risk premium.
It returned to higher than 300 basis points and closed at 326, owed to improvements in the profitability of Spanish 10-year bonds that went from 5.75% to 6.02% and passed the dangerous 6% level.
German bonds fell to 2.76%, demonstrating that they will continue to be a preferred refuge for investors.
Last week´s optimism is gone. It was motivated by an agreement to save Greece, signed by European politicians. "Thinking that in an urgent meeting like this we could have done it all: that is utopian."
