AUCKLAND, New Zealand - September 30, 2011 - New Zealand has lost its AAA grades on local-currency debt at Fitch Ratings and Standard & Poor’s, which both cited concerns about the nation’s fiscal burden. Benchmark government yields rose the most this year.

The outlook is stable after the long-term local-currency rating was reduced one level to AA+ and the foreign-currency rating was cut to AA from AA+, S&P said in a statement, matching actions announced yesterday by Fitch.

New Zealand joins the U.S. and Italy among nations whose sovereign credit ratings have been cut this year, as governments’ struggles to cope with their debt burdens roil financial markets.

Fitch’s downgrade may raise funding costs, adding to the case for Reserve Bank governor Alan Bollard to keep interest rates at a record 2.5% low. Bond yields rose amid concern some overseas investors will sell their New Zealand holdings after the downgrades.

“If funding pressures do intensify, this is one key factor, through a further tightening in financial conditions, that would delay any interest-rate hikes from the RBNZ (Reserve Bank of New Zealand),” wrote Philip Borkin, an economist at Goldman Sachs & Partners New Zealand, in a note to clients after the downgrade.