Moody's downgrades Italy's long-term credit rating to A2

Ratings firm Moody's Investors Service on Tuesday downgraded Italy's long-term government bond rating by three notches to A2 with a negative outlook from Aa2, while affirming its short-term ratings at Prime-1.

It was Moody's first downgrade to Italy's government bond since 1993. The A2 rating is only five steps above junk territory.

The firm cited that long-term funding risks increased for euro zone sovereigns with high levels of public debt, such as Italy. The uncertain market environment and risk of worsening investor sentiment could constrain the country's access to the public debt markets, Moody's said.

And another two drivers for the downgrade were the increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook, and the implementation risks and time needed to achieve the government's fiscal consolidation targets due to economic and political uncertainties.

"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody's said in a statement, "The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets. If such risks were to materialize and the long-term availability of external sources of liquidity support were to remain uncertain, the country's rating could transition to substantially lower rating levels."

Standard & Poor's last month slashed Italy's rating by one notch to A and kept its outlook on negative, citing the euro zone's third biggest economy's weak economic growth and fragile government coalition.