Moody's cuts Israel's rating by two notches

Moody's on Friday downgraded Israel's credit rating two notches to "Baa1" from "A2" and maintained a negative outlook amid escalation of the conflict in the region with Lebanon.

"The key driver for the downgrade is our view that geopolitical risk has intensified significantly further, to very high levels, with material negative consequences for Israel's creditworthiness in both the near and longer term," Moody's said.

The downgrade kept Israel's rating three notches into investment grade. However, Moody's warned that uncertainties over the country's security and its longer-term economic growth prospects "are much higher than is typical at the Baa rating level." A drop below that level would mean Israel would lose its investment grade rating which means a spike in the cost of servicing debt, forcing investors to sell holdings - further pressuring lower the market price of Israel's bonds.