Germany’s Credit Rating Outlook Increased to Stable by Moody’s

Germany’s Aaa credit-rating outlook was increased to stable from negative by Moody’s Investors Service, which cited increased cooperation among European Union members to reduce economic contagion in the region.

Moody’s said it affirmed the top rating. Further collective support to other euro area countries, in particular to Italy and Spain, has led to diminished risks to Germany’s balance sheet, the New York-based company said yesterday in a statement. Progress with respect to fiscal consolidation as reflected in nearly balanced budgets in 2012 and 2013 and a declining debt- to-GDP ratio were also credited for the improved outlook.

The German economy beat economists’ expectations at the end of last year with 0.4 percent growth that also bolstered the fragile recovery in the euro area, the country’s biggest trading partner. Business confidence as measured by the Ifo research institute rose to the highest level in 2 1/2 years in February, consumer sentiment is set to rise to a seven-year high in March, and the Bundesbank predicts growth will accelerate this quarter.

The European Commission raised its growth forecasts for Germany this week, citing rising demand at home. The economy will expand 1.8 percent in 2014 and 2 percent in 2015, it predicted. That’s 0.1 percentage point higher for both years than projected in November.

Often Ignored

Investors routinely ignore ratings companies’ decisions. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and rival Standard & Poor’s suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields down to records.

Germany’s 10-year bund yield rose six basis points, or 0.06 percentage point, to 1.63 percent in London yesterday after dropping to 1.55 percent yesterday, the lowest since July 24. The rate declined three basis points this week.

Moody’s yesterday also increased its outlook for Austria to stable from negative, while affirming its Aaa rating, and took the same action on Luxembourg.

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