Moody's has downgraded Cyprus' government debt two notches, bringing it closer to junk levels, in the latest sign the island nation may become the fourth eurozone country heading towards a multibillion-euro bail-out.
In its announcement, which moved the sovereign bonds from A2 to Baa1 and put them on a negative outlook, Moody’s cited the economic impact of the recent explosion at the island’s main power plant and the “increasingly fractious” political climate in the wake of the blast, which has led to ministerial resignations and halted government austerity plans.
But it also cited Cypriot banks' exposure to Greek debt, which is expected to be ruled in default after eurozone leaders on Thursday agreed a deal which in turn puts pressure on Greek bondholders to trade in their current holdings for bonds of a lesser value.
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