Italy faces “low investment grade” downgrade

Italy’s sovereign debt rating may be downgraded to a low investment grade category, warns Fitch Ratings.

Fitch’s current rating for Italy’s sovereign debt – downgraded from AA- to A+ in October – is reliant on it retaining market access. Should it lose this access, Fitch warns, it will face a further downgrade.

The new government, headed by prime minister Mario Monti, is facing a window of opportunity which it could use to “break the negative market dynamics and shift bond yields towards a more sustainable level”, according to the ratings agency.

Monti’s new technocratic government will face its first test in “securing broad parliamentary and public support for the government and its fiscal and economic reform programme”, says Fitch.

After the government revealed the new austerity proposals earlier today, riot police had to be called in to deal with protestors opposed to the programme.

Fitch describes Italy’s current “treasury debt redemption profile” as moderate, with €31 billion in treasury bills and €35 billion in cash deposits.

However, it is understood that more than €31 billion in medium-term bonds mature in February and €193 billion will be required over 2012 to meet payments, underlining the importance of Italy retaining market access.

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