Moody's Investors Service (NYSE: MCO) yesterday (Wednesday) said it might downgrade Spain's debt rating due to concerns about high borrowing costs, the poor financial state of its banks, and the country's regional debt.
The ratings firm said the country's vulnerability to refinancing needs in 2011 is triggering weak market confidence.
"Spain's substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress," said Moody's analyst Kathrin Muehlbronner.
The country currently has an Aa1 rating from Moody's, which was cut from Aaa in September. The news came a day before a planned bond sale of up to 3 billion euros ($4.01 billion), and at a time when Spain needed to bolster investor confidence in its ability to fix its financial woes.
"The news is another negative for Spain, and only makes tomorrow's Spanish bond auctions even more tricky," Niels From, chief analyst at Nordea Bank AB in Copenhagen, told Bloomberg. "Spain is already struggling to convince market participants that the country can put its own house in order itself."