What's going on?

Credit rating agency Moody�s has cut Italian bank Monte dei Paschi�s rating again � saying it�s even less likely to repay its debts than previously thought. That�s bad news for the world�s oldest bank.

What does this mean?

With Italy on the cusp of a recession, and its debt ballooning to a third larger than its entire economy (to which the country�s government wants to add even more), investors in the country�s government�s bonds risk not getting paid back.


But Italian banks have been increasing their holdings of those bonds � to the tune of $61 billion since May � with Monte dei Paschi one of those helping compensate for slack demand among individual investors. Now, in a cruel twist of fate, Moody�s thinks that Monte dei Paschi�s investment in Italian government debt has made its own bonds a riskier prospect.

Why should I care?

For markets: Bonds aren�t the flavor of the month.

The global market for company bonds is heading for its worst year since 2008: investors have yanked $65 billion from investments in the riskiest ones, according to the Financial Times. In Europe, that�s partly because the European Central Bank is ending its bond-buying program, reducing demand and driving prices down. In the US, the expectation of higher interest rates (and therefore new bonds that will pay better) means there�s less demand for current bonds.

The bigger picture: Piling on Sri Lanka.

Two other debt rating agencies � Standard & Poor�s and Fitch � were also in action on Tuesday, slashing their ratings for Sri Lankan government bonds. Political turmoil in the country has effectively left it without a functioning government � meaning it�ll struggle to agree on a spending plan for next year, when it�s got a lot of debt to repay and likely replace (a.k.a. refinance). While the country says it has a plan to raise fresh moolah, the agencies think there�s now a greater risk of investors not getting paid back.