Spanish Bonds Risk Forced Selling as Rating Approaches Junk

Spanish government bonds are facing a selloff by investors concerned that the nation’s credit rating will be cut to non-investment grade after Standard & Poor’s lowered its ranking for the debt to one level above junk.

Spain’s two-year notes fell for a fourth day, the longest run of declines in six weeks, after New York-based S&P said yesterday it had cut the rating two levels to BBB-. While data compiled by Bloomberg News shows that about half the time government bond yields move in the opposite direction suggested by new ratings, a potential cut to junk may prompt selling by investors who use bond indexes to determine their holdings of fixed-income assets.