Moody's Retains Spain's Investment Grade Rating

Moody's Investor Service has retained Spain's investment grade rating at Baa3 but with a negative outlook, allaying fears that the country would be downgraded to junk status.

Explaining its decision to maintain Spain's rating, Moody's cited positive developments such as the reduction in the risk of Spain losing market access because of the European Central Bank's (ECB) willingness to buy government bonds, and the Madrid government's commitment to reduce the sovereign debt through fiscal and structural reforms.

"The combination of euro area and ECB support and the Spanish government's own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilise public debt over the next few years," noted Moody's in a statement.

Spain is likely to request a second round of credit through the European Stability Mechanism (ESM) worth around €50bn (£40bn), which could ensure the government's continued access to private capital markets.

Spain had earlier requested a €100bn (£81bn) credit line for its troubled banks. According to a Reuters report, Spain was ready to request the second bailout as early as the beginning of October, but was delayed due to Germany's reluctance to sign the deal.

Moody's latest ratings conclude its review into a possible downgrade of Spain's rating, which began in June. The Baa3 grade is in line with the BBB- rating, one step above junk status, conferred on Spain by rival ratings agency Standard & Poor's.

Fitch Rating has Spain at BBB, two notches above junk status.