The Treasury can get no rest. The institution, responsible for issuing national Spanish debt, is going to offer a 10-year bond on Thursday of this week. This will be a difficult two week period that flows into the November 20 general elections.
Several troublesome issues exist: a prolongation of the sovereign debt crisis, fear of global recession, suspicion about the national deficit agreement, threats from ratings agencies and uncertainty about the election. One of these risks could shape up this week.
It is very possible that Moody's will lower Italy's credit rating. The agency revised its outlook for Italy on June 17, bending toward a more negative perspective. The rating is usually re-assessed every three months, so we are expecting a new rating within the next few days. All indicators suggest that Italy, whose national debt equals 120% of their annual GDP, will see its credit rating drop one bracket from Aa2 to Aa3. This is the fourth highest rating on Moody's scale.
Competition with Italy
Adding to Spain's debt difficulties, the national Treasury is struggling to provide cash flow for the markets. In particular, it will be critical that the Treasury times its debt issues with Italy's. The Italians plan to issue several forms of debt this week: 3 and 12-month notes today and various other bond issues on Tuesday.
Relatively, Spain is in a more comfortable position than Italy. The former is facing nearly 40 billion euros worth of bond issues to pay out through the end of 2011, while the Italian treasury will have to buckle down in order to refinance more than 100 billion euros of debt payments also due at the end of the year.
