S&P Downgrades Spain to AA, 10Y-Note Yields 4.12%, CDS Tightens to 187bps and $EWP Testing $37.5 Support

Along with Greece (to junk) and Portugal (A-), S&P downgraded Spain's credit rating to AA from AA+.  The market reaction wasn't very extreme. The Spanish 2 Year Note hit 2.09% (which is still below the February high), the 10 Year Note hit 4.12% and Spain's credit default swaps (CDS) tightened 10.53% to 187 basis points (1.87% insurance premium on debt).  Off topic, why did Saudi Arabia's CDS widen by 17% today?  Here is the S&P release and below that an Associated Press video. 

"MADRID (Standard & Poor's) April 28, 2010--Standard & Poor's Ratings Services today said it had lowered its long-term sovereign credit rating on the Kingdom of Spain to 'AA'. At the same time, the 'A-1+' short-term sovereign credit rating was affirmed. The outlook is negative. Standard & Poor's transfer and convertibility assessment is unchanged at 'AAA'.

The downgrade primarily reflects Standard & Poor's downward revision of its medium-term macroeconomic projections. "We now believe that the Spanish economy's shift away from credit-fuelled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed," Standard & Poor's credit analyst Marko Mrsnik said. "We now project that real GDP growth will average 0.7% annually in 2010-2016, versus our previous expectations of above 1% annually over this period."

[read full release at Standard and Poor's]

The Spain iShares ETF ($EWP) broke below early 2010 support but is testing strong support from late 2008/early 2009 at $37.50.  Euro Land needs CPR.

Courtesy of Stockcharts.com
Courtesy of Stockcharts.com

Also read:

Spain downgraded as Europe debt crisis widens - (AP)

Calamos Says Spain Likely `Next Leg Down' in Debt Crisis: Video (Bloomberg)

A slip of the INE reveals that the unemployment rate exceeded 20% in March, the worst since 1997 (Google Translate for ABC.es)