How did markets respond to potential downgrade? The reaction was quite limited since it didn't contain that much new information (see previous post). For example, yields on German bonds have already risen, reflecting increased perceived risk, so S&P is just catching up with the perceptions of global investors. Yields on bonds of most countries in the Eurozone have retreated from the highs of a couple of weeks ago, indicating less immediate concern. For example, the rates on 3-year government bonds for both Italy and Spain are down nearly 2 percentage points from their November highs.
That said, the effects of the European Debt Crisis is beginning to be felt in Asia, though economic growth is still expected to be robust according to the Asian Development Bank. Investors and policymakers will continue to closely watch what's happening in Europe, hoping that it just results in a European recession rather than a financial contagion. So which Eurozone country is not on creditwatch? Greece, the nation that started it all (because its credit rating is already very low).
