Italian Bonds Face Up to Risk of Ratings Downgrade by Fitch
- Market may be pricing in 30% probability of rating cut: SocGen
- A downgrade will worsen sentiment amid recession: Commerzbank
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Italian bond investors are bracing for the risk of the second sovereign-rating downgrade in as many quarters as a recession threatens the government’s plan to rein in the budget deficit.
Societe Generale SA estimates the market is pricing in a 30 percent probability that Fitch Ratings will lower Italy’s ranking Friday by one step to BBB-, which would leave it one notch above investment grade. While the country will remain eligible for the main bond indexes even after such a cut, investor sentiment will likely worsen given the economic weakness, according to Commerzbank AG, which recommends positioning for a flattening of the nation’s yield curve.