Moody's downgrades Italy on increased economic weakness

Moody's yesterday downgraded Italy three notches from Aa2 to A2, citing increased funding risks for eurozone sovereigns and increased downside risks to economic growth. 

Moody's says that these risks to economic growth include macroeconomic structural weaknesses and a weakening global outlook. Moody's also cites implementation risks to the government's fiscal consolidation targets to reverse the trend of increasing public debt, with political uncertainty being a key factor.

The market seems to have shrugged off the downgrade, with Italy's credit default swap drifting marginally wider, by 4 basis points, to 491bp according to data from Markit, while several SovX names, including fellow peripheral eurozone members Spain and Ireland, actually moving slightly tighter in early trading.