War in Israel: Moody’s issues warning on country’s credit profile

Moody’s sent a warning to Israel on Wednesday, just days before a planned credit rating review, and stated that a war prolonged with Hamas could cause a cut in the country’s debt rating.

The Hamas attack over the weekend has sparked the worst escalation of violence with Israel in 50 years and has raised questions not only about the humanitarian cost but also the economic impact.

Moody’s, which plans to review the rating “A1 stable” dand Israel on Friday, said the chances of a downgrade would depend on how the war unfolds.

“In the past, Israel’s sovereign credit profile has shown resilience to terrorist attacks and military actions,” a group of the firm’s top analysts said in a note.

“However, a protracted conflict that causes lasting and significant damage to the economic activity and policymaking would test that resilience.”

Moody’s comments came as traders raised the cost of insuring Israel’s debt against default to the highest level in almost a decade.

Credit default swaps, as the insurance policies are known, surpassed the 100 basis point level, meaning they are up more than 65% since the weekend attacks.

Israel’s rating has never been downgraded by any of the three major agencies – S&P Global, Moody’s and Fitch – but analysts point out that this week’s rise in CDS shows that traders fear a downgrade could now be implemented.

Source: Reuters.