Italian BTP futures fall after rating downgrade

LONDON, July 10 Wed Jul 10, 2013 2:13am EDT

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LONDON, July 10 (Reuters) - Italian BTP futures fell on Wednesday after ratings agency Standard & Poor's downgraded Italy by one notch to BBB and left its outlook negative.

The agency cited concerns about Italy's economic prospects and the impaired monetary transmission mechanism in a move that came before an auction of up to 6.5 billion euros of Italian medium and long-term bonds on Thursday.

BTP futures last traded 91 ticks lower at 109.95.

"It should put some pressure on Italy, but (yields) should not rise more than 10-20 basis points," said Jan von Gerich, fixed income chief analyst at Nordea.

"The downgrade illustrates that we haven't reached the bottom yet (for ratings) and it shows how worried Spain should be. Spain is more immediately at risk (of forced selling). The big thing would be if Spain lost its investment grade status."

Spain is rated only one notch above junk by Moody's and S&P and could face forced selling by investors who only hold investment grade bonds.

Von Gerich added weak Chinese trade data should support German Bunds.

Bund futures were 19 ticks higher at 142.75.

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