Moody's to cut Austria, Finland, France, Netherlands

Greece's exit from the Eurozone could trigger a next round of ratings downgrade, according to a credit-default swaps prices review provided by Moody’s Analytics.

Moody's to cut Austria, Finland, France, Netherlands

by Ladislav Jakab
WBP Online

London - Four out of six Eurozone countries are threatened with a downgrade from their top Aaa rating provided by Moody's Investors Services.

Austria, Finland, France and the Netherlands could lose their top grades as Moody’s Analytics has reviewed the credit-default swaps (CDS) prices of the Eurozone member countries.

France is heading towards a downgrade of as many as nine steps to Baa3 level, the steepest pace among the group, while Austria may go through an eight step slump by finding itself at Baa2. The costs of default insurance further signals a six grade cut for the Netherlands and four for Finland. 

Concerns about the ability of the European Union to tackle the debt crisis still persists ahead of its two day summit due to start later today.

Potential Greek Eurozone departure could endanger the existence of the 17-country common currency and a holding of sovereign bonds of the member-countries in the books could become a loose cannon.

The risk of vast damages in portfolios prompted investors to undertake relevant steps in order to hedge their exposure in toxic sovereign bonds. The increased demand for the Credit Default Swap bonds lifted their prices high.

“Investors are gradually discovering that a large proportion of stuff they thought was safe is turning out not to be,” said Matt King, global head of credit strategy at Citigroup Inc. in London. “We are concerned that even as the magnitude of the risks is becoming bigger, policy makers seem as far apart as ever when it comes to agreeing on solutions.”

In a reaction to the higher hedging tools demand, the CDS prices of Austria, Finland, France and Netherlands have almost doubled in the past year confirming the continuous five year contraction. The contracts on France reached 199 basis points compared to 90 points one year ago, Austria rose 105 points currently trading at 174, the Netherlands is 74 points higher on 114 and Finland increased 41 basic points and recently traded at 88.

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Photo: ISIFA