Moody’s Downgrades Israel’s Rating, Cautions on Potential Drop to ‘Junk’ Status – Reuters

Moody’s has downgraded Israel’s credit rating by two notches from “A2” to “Baa1” and has maintained a negative outlook, citing an escalation in regional conflict, particularly with Hezbollah.

The credit rating agency indicated that the key factor behind the downgrade is the significantly heightened geopolitical risk, which is believed to have serious negative implications for Israel’s creditworthiness in both the short and long term.

While Israel’s rating remains three notches above the investment grade threshold, Moody’s expressed concerns that uncertainties regarding the country’s security situation and its future economic growth potential are considerably greater than what is typically observed at the Baa rating level. Should Israel’s rating fall below this level, it would no longer hold an investment grade rating.

Further downgrades could occur if the current tensions with Hezbollah escalate into a full-scale conflict, according to Moody’s.

A loss of investment grade status usually results in increased costs for servicing debt and may compel some investors to liquidate their holdings, thereby exerting additional downward pressure on the market value of Israel’s bonds.

In addition, Fitch recently downgraded Israel’s credit rating to “A” from “A-plus,” also maintaining a negative outlook.