Moody's Meets Zapatero

That Moody's will be deciding whether or not to downgrade Spain's credit rating on the same day that President Zapatero presents his 2011 budget proposals to the Spanish congress is just too beautiful a piece of coincidence for words. Seems all bets, however few there actually seem to be, are that they downgrade to aa1. That the Spain 10-year/bund spread seems to be hanging in at its range of the last period and that CDS don't seem to be reacting - at least judging by the lack of mention in the press which so much loves the knee jerk volatility of those things - may imply that this is all yesterday's news.

But since we stupidly missed the opportunity to present the 'no change' prediction in our earlier piece on Sacyr Vallehermoso (depriving ourselves of the chance to give readers the leg up on a 19 percent gain in three weeks in the process), we'll take a run at it here. What if Moody's fails to downgrade because, for example, the Ministry of Finance is on track to halving the fiscal deficit for 2010?

1). Expect the 10-year yield to drop below 4 percent, as it has recently threatened to do on a number of occasions;

2). Spanish banks will be the big stock market beneficiaries;

3). For American ADR punters on BBVA and Santander, this will probably be amplified by continued euro strength.

A stop, not tight enough to get hung out to dry in the event that a downgrade turns into a non-event, is recommended.

Most importantly, readers should contribute their own homework to the task.

QorreO has again asked for our opinion... this time on Wednesday's general strike. The article can be found here.

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