Spanish yields fall as Moody's holds back Moody's unexpected decision to spare Spain's credit rating from a downgrade to junk - for now - caused both Madrid and Rome's borrowing costs to tumble on Wednesday. Many investors and analysts had feared that a widely expected Moody's downgrade, coming soon after Standard & Poor's relegated Spain to its lowest investment grade status, could have triggered a spate of selling by investors who are only allowed to buy high grade debt. Morgan Stanley's analysts recently calculated that a Moody's downgrade to junk would have led to the forced sale of €12bn. Further downgrades to junk by the other rating agencies could see forced selling of up to €60bn. "This is unambiguously good news for risk appetite, and quite downbeat for (German) Bunds," Société Générale said in a note. The reaction today in the market strikes us as surprisingly mild. Spain's benchmark 10-year bond yield fell 23 basis points to 5.55 per cent, around six-month lows and Italy's comparable bond yield fell 11 basis points to 4.82 per cent. Moody's predicated its decision to affirm Spain's rating on Madrid asking for a credit line from the European Stability Mechanism (ESM), triggering intervention by the European Central Bank in its bond market. Spain has been delaying a formal request for sovereign aid, while negotiating the conditions that would be imposed in return, but is expected to do so soon. This will allow the ECB to activate its bond buying programme and would lead to the risk of Spain losing market access "materially reduced," Moody's said. RBC Capital Markets analysts said in a note: "The only fly in the ointment could be that Moody's confirmation of Spain's rating could reduce the pressure on Spain's government to actually request aid from the ESM soon." However, the agency warned that "the maintenance of market access is critical" and said this could be threatened by lack of progress in ameliorating Spain's fiscal woes or wider eurozone shocks, such as a lack of progress as regards reforming the currency bloc's fiscal, economic and regulatory institutions or the possibility of a Greek exit. Moody's therefore kept Spain on a negative outlook, and stressed that the risks to its baseline scenario "are high and skewed to the downside"