FRANKFURT (MarketWatch) — Italian government bond yields rose Tuesday after Standard & Poor’s Ratings Services cut Italy’s credit rating one notch, putting further pressure on euro-zone leaders to stem the region’s ongoing sovereign-debt crisis. Late Monday, S&P; lowered Italy’s long-term credit rating to A from A-plus and cut its short-term rating to A-1 from A-1-plus, citing a weak economic outlook and ongoing political gridlock. S&P; also said the outlook for Italy’s ratings is negative, meaning a further cut is possible. All eyes had been on rival ratings firm Moody’s Investors Service, which had announced last week it would take an additional month to decide whether to downgrade Italy’s ratings. “Just when everyone was waiting for Moody’s to downgrade Italy, S&P; gets in first with what is a much more damaging downgrade as its rating of Italy was already the lowest of the three agencies,” said Gary Jenkins, head of fixed income at Evolution Securities in London. Italy is the euro zone’s third-largest economy behind Germany and France and is considered to be too big to save should it run into the same kind of trouble that beset Greece, Portugal and Ireland. As a result, the European Central Bank has been helping, buying around €5 billion to €10 billion in the riskier euro-area bonds over the last five weeks. Commerzbank said in a research note that the lengthy process of ratifying changes to the European Union’s main bailout vehicle was starting to impair the effectiveness of the central bank’s bond buying program. The downgrade could increase Italy’s borrowing costs just as the country embarks on a large-scale refinancing program that entails nearly 30 billion euros ($41.3 billion) of gross bond issuance in October and November, said Boris Schlossberg, director of currency research at GFT.
– Silvio Berlusconi’s office reacted angrily to Standard & Poor’s downgrade of Italy’s credit rating today, insisting that it had a solid majority in parliament and was taking the necessary steps to solve Italy’s debt crisis, the New York Times reports. “The evaluations of Standard & Poor's seem dictated more by behind the scenes reports in newspapers than reality,” the government said in a statement, “and seems influenced by political considerations.” The move actually didn’t much rattle stocks; the Euro Stoxx 50 index was actually up almost 2% by midday. But the yield on Italian bonds shot up to 5.59%, increasing the beleaguered country’s borrowing costs. “Just when everyone was waiting for Moody’s to downgrade Italy, S&P gets in first with what is a much more damaging downgrade,” one securities analyst tells MarketWatch. Moody’s has extended its review period for the country.