How To Trade Moody's Spanish Debt Rating Cut (EPV, STD, TEF, EWP)

Ratings agency Moody's Investors Service lowered the Spanish government's bond rating one level from Aa1 down to Aa2.

The ratings agency said in a statement that it "believes there is a meaningful risk that the eventual cost of the recapitalization effort could considerably exceed the government's current projections."

While the Spanish government says that it expects that the cost of restructuring Spanish banks will be around 20 billion euros, Moody's believes that the figure is more likely to be twice as high at around 40 billion euros, or as high as 110 billion to 120 billion euros in a more stressed scenario.

Like Greece, which also saw its debt rating lowered by Moody's earlier this week, the Spanish government is trying to reduce budget deficits by lowering spending and raising taxes.

However, Moody's is concerned that Spain will face difficulties making and sticking to the necessary reforms during a time of high unemployment. Similar moves made by the Greek government last year led to deadly riots.

The fact that Spain's federal government has little control over its autonomous regional governments' finances was also a factor in Moody's decision to lower Spain's debt rating.

This is just the latest lowering of debt ratings in Europe and has increased fears that other Euro-zone countries such as Greece, Italy and Portugal will face further fiscal difficulties.

Investors who believe that the lowering of Spain's credit rating may be a sign of (or could lead to) trouble in other European economies may want to consider the ProShares UltraShort MSCI Europe ETF EPV, which seeks daily investment results, before fees and expenses, that correspond to twice the inverse of the daily performance of the MSCI Europe Index.

Investors who are still interested in Spanish equities should consider the following investments that are also traded on the New York Stock Exchange:

Banco Santander, S.A. STD is a Spanish financial services company that operates three main business segments: retail banking, global wholesale banking, and asset management and insurance.

Telefonica SA TEF provides fixed and mobile telephone services in Spain, the rest of Europe and Latin America.

Investors who would like exposure to the broader Spanish market should take a look at the iShares MSCI Spain Index Fund EWP, which seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Spain Index.