France risks losing its top AAA grade because of a wave of sales

France risks losing its top AAA grade as the debt crisis in Europe caused a wave of sales, which threatens to engulf the highest-rated borrowers in the region, with Belgium also faces a possible cut, analysts and investors, said.

Moody's Investors Service said on December 15 can be lowered Spain's rating, citing "substantial financing requirements, and status of Ireland fell by five levels on 17 December. Standard & Poor's is reviewing its assessments of Ireland, Portugal and Greece. Credit default swaps show it is more expensive to insure bonds Belgian, French and Austrian lower-rated securities in Chile and the Czech Republic.

"Every sovereign may be penalized in the next year," said Toby Nangle, who helps oversee 46 billion U.S. dollars as head of asset allocation at Baring Asset Management in London. "It would be a great thing if France was to be stripped of its AAA rating. I do not think that the probability of a cut is reflected in the market."

EU leaders agreed last week to modify the treaties of the block to create a permanent mechanism of the debt crisis in 2013, in an effort to stop the contagion that began more than a year in Greece. Bond yields rose across the region, even after Greece and Ireland were rescued and a backup center worth $ 1 billion was created.

"If problems in the euro area are not resolved quickly, then the refinancing conditions will be difficult for those countries and the rating agencies will make more sales," said Ralf Ahrens, who helps manage about $ 20 billion as chief fixed income Frankfurt Trust. "We've seen this dynamic market. I see France as a risk."

Bondholders Banks

Valuation of France is capable of credit unless the country makes "significant reductions" in its deficit, "said Padhraic Garvey, head of debt markets strategy at ING Bank NV developed in Amsterdam. the nation's banks are the largest holders of debt issued by the countries called the peripheral region, posing potential "systemic risk", said Markus Ernst, a credit strategist at UniCredit SpA in Munich.

Costs to ensure the French government debt more than tripled this year to around 102 basis points, nearing the record high of 105 reached on 30 November, according to data provider CMA.

Swaps credit-default linked to French bonds implies a rating of Baa1, seven steps below its actual range of the top of Aaa by Moody's, according to the group of companies based in New York market research capital.

Contracts Portugal implies a rating of B2, 10 levels below their grade A1, while the swaps of bonds linked to Spanish trade Ba3, 11 steps below its range Aa1, the Moody's data show the research group . Derived from the Belgian debt protection implies a rating of Ba1, nine steps below its actual rating of Aa1.

Political infighting

In Belgium, the seven political parties participating in the coalition talks are discussing whether to give more fiscal autonomy for the regions of the country after inconclusive elections in June left him without a government. Belgium's public debt is nearly 100 percent of gross domestic product and 65 million euros (87 billion) in bonds of the nation and the bills are due to mature next year.

"Sustained domestic political uncertainty of Belgium poses risks to the solvency of their government," said S & P in its report of 14 December which reduced the country's outlook to negative from stable.

The European Union agreed in October to establish a European mechanism to address stability to nations struggling to meet debt payments. The finance ministers of the 16 nations sharing the euro on Nov. 28, said that "a loan ESM enjoy a preferential status and creditors, junior only" to the International Monetary Fund loans.

S & P Warnings

The declaration, which means that bondholders rank behind those emergency loans, ask S & P to warn that may decrease the BB + rating class Aa Greece and Portugal long term. The decision also deepened the crisis, analysts at Morgan Stanley, said.

"The current phase of the crisis of sovereign debt world is the result of a deterioration in government bonds in the structure of liabilities of governments," said Arnaud Mares, executive director of Morgan Stanley and former senior vice president at Moody's in December 6 un investor note.

Spanish financing need for "regional governments and the banks that the country was vulnerable to episodes of financial stress," said Moody's analyst Kathrin Muehlbronner in a report of 15 December.

Moody's places ratings of Ba1 Greece bonds in the test last week for a possible downgrade, citing growing concerns about the country's ability to reduce its debt to "sustainable levels."

Ireland's credit rating was cut by Moody's to Baa1 from Aa2 on 17 December and the company said that further reduction is possible for the government struggles to stem losses in the banking system in the country.

Irish lawmakers voted last week to accept an aid package of 85 billion euros from European governments and the International Monetary Fund to help stabilize the country's financial system. Greece earlier this year became the first euro to seek external support.