Skip to comments.Bulgaria Debt Cheaper to Insure than Higher-Rated Spain
Posted on 09/19/2011 4:15:06 PM PDT by TigerLikesRooster
Bulgaria Debt Cheaper to Insure than Higher-Rated Spain
Finance | September 19, 2011, Monday| 427 views
A placard reading `No to social cutbacks` is seen at the head of a demonstration called by the movement 15-M (also known as `indignados`) against the privatization of public services and welfare cuts, in Pamplona, Spain, 18 Sept. Photo by EPA/BGNES
Major rating agencies once again came under fire on Monday after it emerged that the debt of Spain, whose credit status is Aa2, is more expensive to insure than Baa2-rated Bulgaria.
The cost of insuring Spanish debt against default rose to 390, compared with 329 for Bulgaria, according to comparative market analysis prices, released on Monday, as cited by Bloomberg agency.
(Excerpt) Read more at novinite.com ...
Simple answer - the rating agencies are wrong. Or they are being leaned on.
Spanish bond ratings are too high, if by too high we mean that the agencies are being excessively optimistic.
The obvious speculation is that this debt is overrated as a result of political pressure. If they were to rate Spanish bonds (or any of the more economically sensitive ones) as they should be they invite a panic reaction that can bring down the whole house of cards.
The insurers are not required to go along with these convenient fictions however.
That’s it. The same happens with Turkey vs. Spain. Turkish bonds are cheaper despite their lower calification.