Beijing, June 27 morning news, investors, Moody's Investors Service is planning to Spain's sovereign rating lowered to "junk". Prior to this, investors have the largest bank in Spain and the company's cost of default insurance pushed close to the highest level in history.

The data show that in this quarter, the largest Spanish bank Banco Santander (SAN), credit default swap prices rose sharply by 23% to 454 basis points, close to 474 basis points in November last year, touched a record high level. The same period of the Spanish Foreign Bank (BBVA) credit default swaps rose 26% to 477 basis points, approaching the record high of 516 basis points set in May. In addition, the Spanish telecommunications (TEF) credit default swaps rose 70 percent to a record 540 basis points.

Credit default swap is a financial derivative products derived from credit card loans, can be seen as insurance against default of a financial asset, creditors through this contract, debt risk by selling the contract price is premium. The purchase of credit default insurance is known as the buyers risk, the party was called to the seller. The two sides agreed that the financial assets there is no event of default, the buyer to the seller on a regular basis to pay the "premium" in the event of breach of contract, the seller bears the buyer's loss of assets. The credit default swap period, the price of one basis point is equivalent to $ 1,000 a year to protect $ 10 million of bonds in the five years from the breach.

Moody's Investors Service research report released yesterday, the long-term debt and deposit ratings of 28 Spanish banks has been reduced to four levels, which Banco Santander's rating was lowered two levels, the rating of the Spanish foreign banks were reduced by three levels. Prior to this, the agency has in the June 13, Spain's sovereign rating lowered to "Baa3, close to the edge of default rating. Moody's Investors Service to review still Spain's sovereign rating may be lowered further, because the country has applied for a ? 100 billion (about $ 125 billion) international aid for its banking sector, and market speculation losses from the real estate industry of the country situation will continue to deteriorate.

Societe Generale Bank (SCGLF) Sochi - Mann (Suki Mann), a credit analyst in London said: "If Moody's, as we expected in the coming weeks as lowered Spain's sovereign rating, then the future there will be more action if Moody's Spain's sovereign rating lowered one level, to 'of Ba1', then the country's banking system is likely to fall into the 'junk' area, but the possible exception of Banco Santander.

The worst performance

According to the European corporate banking index (Euro Corporates Banking Index), Bank of America Merrill Lynch used to track the 742 securities market transactions this month, the Spanish bank bonds in the European financial company is the worst performance. The index tracking the overall bond rate of return of 0.53%, while the rate of return on bonds of the Bank of Spain was only 0.27%, 0.19% rate of return of the German securities.

Santander's credit default swap prices today fell two basis points to 451 basis points; the price of Spanish foreign banks fell by 3 basis points to 478 basis points.

Market participants pointed out that bond spreads are expanding, suggesting that Spain's largest lender, borrowing costs may rise. According to the Bloomberg Bond Dealers (Bloomberg Bond Trader) price index, compared with the most secure government bonds, Banco Santander is scheduled for 2017 due, the coupon rate of 4 percent to 1 billion euros ($ 1.25 billion dollars) for purchase of bonds to be higher than 559 basis points, widened 553 basis points in yesterday; Spanish Foreign banks set to expire in 2016, the coupon rate of 4.875% of the ? 500,000,000 (about $ 630 million) bond the spread between government bonds to 578 basis points to 567 basis points higher than yesterday's.

Spreads widened

Bank of America Merrill Lynch's European corporate banking index, the spread between the Spanish bank bonds and comparable German government bonds has increased sharply to 648 basis points, well above the 433 basis points as of the end of March. This compares to track the index, the average spread between the bond and the comparable German government bonds is only 291 basis points.

Moody's Investors Service said in a report released yesterday, the agency has at least more than a dozen Spanish bank rating cut to "junk" status, but in all cases are still under review its rating, the future may further demotion. Moody's rating system, the "junk" means less than "Baa3" rating; system of Standard & Poor's and Fitch Ratings, the "junk" refers to below "BBB-" rating.

In this latest report, Moody's pointed out that the agency's downward move of the bank ratings reflects the trustworthiness of the decline of the Spanish Government, which weakened the ability of the government for the country's banks to provide support; addition also reflects Moody's and commercial real estate-related losses will be expected to continue to rise.

Netherlands Bank for International Cooperation (Rabobank International) Orly - Boras (Olly Burrows), a credit analyst in London said: "We expect that Spain will also ask for assistance, not just the country's banks."




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