There was fear of a two-notch downgraded, which would have put it below the junk threshold. Instead, it gets a stable outlook, which means the chance of another downgrade in the near-term is low.
They say the reason for the downgrade is a material weakening in Italy’s financial strength. The market is still open here and the euro has ticked a bit higher but I’d hesitant to read anything into a market move at this hour.
Italy’s rating was Aa2 in 2011 but it’s been downgraded relentlessly as debt piled up during and after the debt crisis. This week, 10-year Italian yield spreads above German debt hit the widest since 2013. Italy is paying 3.48% to borrow for 10 years with Germany paying 0.46%.
S&P is scheduled to weigh in on Italy next Friday (Oct 26). Their rating is currently BBB with a stable outlook.
As for commentary, Moody’s said that most of the planned increase in government spending in the budget is structural, which means it will be difficult to reverse. They said the governments plans “do not comprise a coherent agenda of reforms.”