Via Peter Tchir, of TF Market Advisors [5],
If I understand the process in Europe correctly, S&P has to provide 24 hour notice to the countries if they are going to change their ratings. S&P has Italy as A1 on negative watch. Moody's is A2 with outlook negative. So S&P has Italy higher rated, so it would be weird if they didn't downgrade them. But if they downgrade them, and they notified Italy, did they just sell bonds to the public while hiding material information?
If Italy sold bonds while in possession of information that they were going to be downgraded, are those bond sales valid? Guess it depends on what happens to the price, but if they drop in price, and Italy gets downgraded, I could see some buyers trying to DK the trade. It would be about par for the course and I think would reflect poorly on Italy at a time when they need the trust and confidence of the market.
So maybe Italy doesn't get downgraded, but if it does, I think Italy has opened another can of worms and demonstrated just how disorganized they are.