HVB downgrade forces spreads wider

The cost of five-year senior protection for HypoVereinsbank (HVB) widened by more than 10 basis points to 95/115bp yesterday after rating agency Standard & Poor's downgraded the German bank. The downgrade, along with another negative report on bank risk in Europe by S&P released today, caused financial spreads to widen generally.

S&P downgraded HVB's long-term debt ratings to A- from A, and its short-term ratings to A-2 from A-1, with negative outlook. The agency was concerned that a prolonged economic downturn could further weaken HVB’s business and risk profile, particularly through increased credit risk and depressed revenues.

Debt protection costs on another German bank, Commerzbank, widened from 110/130bp on Tuesday to 110/145bp today. Yesterday, S&P affirmed its A- counterparty credit rating on Commerzbank with a

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