LONDON, June 26 (Reuters) - Italian automaker Fiat's bonds fell sharply in Europe on Wednesday after it suffered a credit ratings downgrade that left its debt just one-notch above the "junk" category."
Fiat's 6.25 percent euro bond due February 2010 was trading to yield around 360 basis points over government bond yields -- 75 basis points more on the day. Those bonds are now worth just 88.7 cents in the euro.
Moody's cut the firms long-term senior unsecured debt rating to Baa3 -- its lowest investment grade rating -- from Baa2, citing continuing poor performance in Fiat's core auto units.
"This was not a surprise but news is never factored into this market fully," said an auto analyst at a British bank. "While ratings will likely be stable now through to year-end there is more bad news to come.
In particular, investors will watch Fiat's European sales figues that are due on 11 July and its second quarter results which are due on 25 July, analysts said. Analysts also said that neither is expected to be positive.
"Spreads will remain highly volatile because of this drip-drip of bad news," said a trader at a European bank.
Traders said that there has been talk of Fiat issuing more unsecured bonds this year in an attempt to lengthen the amount of time it has to repay debt.
"This, on the face of it, is a good idea but it is very doubtfull now whether they could get a deal away," said an analyst at a U.S. bank in London."
Fitch Ratings has Fiat's senior unsecured rating at BBB with a negative outlook -- roughly one notch above Moody's new level. Standard & Poor's assigns the firm a short-term rating of A-3.