Smoke is seen as rocket barrages are launched from the Gaza Strip, in Ashdod, Israel.
Credit: Reuters Photo
Moody's sent a warning to Israel on Wednesday just days before a scheduled rating review that a prolonged war with Hamas could drag down the country's credit score.
Surprise attacks by Hamas at the weekend have sparked the worst escalation in violence in 50 years and raised questions about not just the humanitarian cost, but the economic toll as well.
Moody's, which is scheduled to review Israel's "A1 stable" rating on Friday, said the chances of a downgrade would depend on how the war develops.
"In the past, Israel’s sovereign credit profile has shown resilience to terrorist attacks and military action," a group of the firm's top analysts said in a note. "However, a prolonged conflict that durably and significantly impairs economic activity and policymaking would test that resilience".
The comments came as traders pushed the cost of insuring Israel's debt against a default to the highest level in nearly a decade.
Credit default swaps, as the insurance policies are known, broke through the 100 basis points level, meaning they have surged more than 65% since the weekend's attacks.
Israel has never been downgraded by any of the three main ratings agencies - SP Global, Moody's and Fitch - but analysts highlight that this week's surge in CDS shows traders have concerns that it now could be downgraded.
Seaport Global analyst Himanshu Porwal said the spike in Israel's CDS has made them more expensive than those of India, which Moody's rates five notches lower than Israel and on the lowest investment-grade rung.