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S&P downgrades Spain’s credit rating

Standard & Poor’s has cut the long-term credit rating of Spain by two notches from A to BBB-plus citing deteriorating government finances as a result of a contracting economy and ailing banking sector.

The ratings agency has also placed the country in negative outlook, meaning there could be further downgrades to come.

The move means Spain’s credit rating is now three notches above junk status and the move is likely to increase the country’s borrowing costs. Spanish 10-year bond yields currently stand at 5.97 per cent.

In September, S&P reduced Spain’s long-term credit rating by one grade from AA to AA-.

In a statement published yesterday, S&P says: “We believe that the Kingdom of Spain’s budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.

“At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.”

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