S&P cuts Greek rating to junk, outlook negative

NEW YORK/ATHENS (BestGrowthStock) – Standard & Poor’s downgraded Greek bonds into junk territory on Tuesday, citing concerns about the euro zone member’s ability to implement reforms to slash its massive debt.

Greece has suffered multiple ratings downgrades since its fiscal crisis started in October but this is the first time that an agency cut its debt to junk status, increasing pressure on already record high Greek bond yields.

“It’s an indication of the continued uncertainty over Greece’s prospects and particularly the uncertainty over when and whether it will actually receive the rescue package that the ECB and the IMF have been discussing,” said Jonathan Loynes, economist at Capital Economics.

S&P cut the rating by a full three notches to BB-plus, the first level of speculative, or junk, status. The outlook is negative, meaning the agency could downgrade Greece again.

“(This) results from Standard & Poor’s updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory,” S&P said in a statement.

The spread between Greek 10-year government bonds and benchmark German bunds widened to a fresh 12-year high of 718 basis points after the rating cut.

Two-year benchmark euro zone government bond yields fell to a euro lifetime low as investors sought a safe haven after the Greek downgrade and an S&P downgrade of Portugal’s credit rating by two notches to A-minus. European shares fell at their fastest rate in more than two months.

The downgrade put Greece on par with Romania and below Kazakhstan, Hungary and Iceland, the last of which rocked global markets when its main banks imploded at the start of the global financial crisis.

S&P also assigned a recovery rating of ‘4’ to Greece’s debt issues, indicating its expectation of “average” (30-50 percent) recovery for debtholders in the event of a debt restructuring or payment default.

The agency lowered its ratings on four Greek banks following its downgrade of Greece’s sovereign rating.

Moody’s Investors Service cut Greece’s sovereign debt to A3 on Thursday and said it was likely to reduce the rating further unless the deficit-stricken government restored market confidence.

Fitch Ratings cut Greece’s credit rating to BBB-minus earlier this month, its lowest investment-grade rating, and signaled further downgrades are possible.

Money

(Reporting by Ciara Linnane in New York and Ingrid Melander in Athens; Additional reporting by Mike Winfrey; Editing by Susan Fenton)

S&P cuts Greek rating to junk, outlook negative