Global ratings agency Moody's on Thursday placed Israel's A1 ratings on review for a possible downgrade, citing the ongoing war with the Palestinian Islamist group Hamas.
Israeli Defence Minister Yoav Gallant told troops gathered at the Gaza border on Thursday that they would soon see the Palestinian enclave "from inside," suggesting an expected ground invasion with the aim of annihilating Hamas could be nearing.
"While a short-lived conflict could still have credit impact, the longer lasting and more severe the military conflict, the greater its impact is likely to be on policy effectiveness, public finances and the economy," Moody's said.
Israel CDS cost spikes 80%
There has been a huge spike in the cost of insuring Israel's government debt using what are known as credit default swaps (CDS). Investors use CDS either as a protection tool or to speculate and last week the cost of buying Israel CDS surged 80%.
Israel has never been downgraded by any of the three main ratings agencies - S&P Global, Moody's and Fitch.
Earlier this week, rival rating agency Fitch placed the country on rating watch negative and warned a major escalation of the ongoing conflict could result in a negative rating action.