Holders of Italian bonds will nervously eye the debt-rating agencies over the next few weeks ahead of what many anticipate is an imminent downgrade of the country’s sovereign-debt rating, a move that would inflict pain on a bond market already struggling to stem selling among skittish investors.
Analysts say sooner or later one of the ratings services will pull down Italy’s credit rating to a notch above the so-called junk level, and spark fears of an eventual slide into the dicey-credit bucket altogether. Despite the higher yields on offer in the Italian bond market, investors are wary of being caught in a scenario where a downgrade into “junk” would prompt conservative investors to dump their holdings of Italian sovereign debt, causing bond prices to collapse and yields to surge. Bond prices move in the opposite direction of yields.
