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| Spain's borrowing costs at fresh high after Moody's cut | Spain's borrowing costs at fresh high after Moody's cut |
| (about 1 hour later) | |
| Spain's borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate. | Spain's borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate. |
| The yield on benchmark 10-year bonds hit 7% on Thursday morning, a level which many analysts believe is unsustainable in the long term. | |
| It came as Moody's cut Spain's credit rating to one notch above "junk" and ahead of an Italian bond auction. | It came as Moody's cut Spain's credit rating to one notch above "junk" and ahead of an Italian bond auction. |
| At the weekend, Spain agreed a 100bn-euro ($126bn; £81bn) bailout of its banks by fellow eurozone countries. | At the weekend, Spain agreed a 100bn-euro ($126bn; £81bn) bailout of its banks by fellow eurozone countries. |
| It was hoped that the bailout would help calm fears in the financial markets about the strength of Spain's banks and ease Madrid's borrowing costs. | It was hoped that the bailout would help calm fears in the financial markets about the strength of Spain's banks and ease Madrid's borrowing costs. |
| However, Moody's said the eurozone plan to help Spain's banks would increase the country's debt burden. | However, Moody's said the eurozone plan to help Spain's banks would increase the country's debt burden. |
| Moody's cut Spain's rating from A3 to Baa3 and said it could reduce this further within the next three months. | Moody's cut Spain's rating from A3 to Baa3 and said it could reduce this further within the next three months. |
| If Spain is cut to junk, some index-tracking investors would be forced to sell the country's bonds, adding to upward pressure on yields and pushing Spain's financing costs higher. | If Spain is cut to junk, some index-tracking investors would be forced to sell the country's bonds, adding to upward pressure on yields and pushing Spain's financing costs higher. |
| On Thursday, Italy will test market sentiment with the sale of up to 4.5bn euros of bonds. | On Thursday, Italy will test market sentiment with the sale of up to 4.5bn euros of bonds. |
| Moody's also cut its credit rating for Cyprus by two notches, from Ba1 to Ba3. | Moody's also cut its credit rating for Cyprus by two notches, from Ba1 to Ba3. |
| Cypriot banks are heavily exposed to the troubled Greek banking system. | Cypriot banks are heavily exposed to the troubled Greek banking system. |
| However, it is unclear whether the Cypriot government will seek a loan from its European partners or will instead turn to Russia, who already provided it with a 2.5bn-euro loan in December. | However, it is unclear whether the Cypriot government will seek a loan from its European partners or will instead turn to Russia, who already provided it with a 2.5bn-euro loan in December. |