Moody’s downgraded Cyprus’ government bond ratings by two notches to Ba3 from Ba1, and has placed the ratings on review for further possible downgrade.

The key driver for the downgrade is the material increase in the likelihood of Greece exiting the Eurozone, and the resulting increase in the likely amount of support that the government may have to extend to Cypriot banks.

The downgrade reflects Moody’s assessment that this risk increases by the fact that the country’s finances are already strained and access to the international markets is still denied. Moody’s said that the decision to maintain Cyprus’ sovereign bond ratings on review for further downgrade reflects the need to assess the substantial downside risks to the banking sector and the sovereign as a result of Greece exiting the Eurozone. These risks have the potential to rise in the aftermath of the Greek elections this Sunday.

source: Proton Research