Greek bonds get junk rating from S&P
You know that your country is in trouble when investors want 15% to buy your bonds.
If you still needed confirmation of the depth of the Greek debt crisis, today Standard & Poor’s lowered its long- and short-term rating on Greek government debt to BB+ and B, respectively. BBB- is Standard & Poor’s lowest investment grade rating. BB+ is its top “speculative” rating.
In other words Greek government bonds are now junk bonds.
Before this downgrade Standard and Poor’s had rated the country’s bonds BBB+ and A-2 for the long-term and in the short-term.
“Medium-term financing risks related to the government’s high debt burden are growing, despite the government’s already sizable fiscal consolidation plans,” S&P said today. “Our updated assumptions about Greece’s economic and fiscal prospects lead us to conclude that the sovereign’s creditworthiness is no longer compatible with an investment-grade rating.”
And worse is yet to come, according to S&P, which said that the outlook for Greek debt is negative.
S&P gave the debt a recovery rating of “4.” That means, in S&P’s system, that investors who own Greek debt can expect only a 30% to 50% recovery of their investment in the event of a debt restructuring or a default in interest payments.
The downgrade is actually a huge deal since many banks and central banks won’t or can’t accept bonds rated below investment grade as collateral for loans. Since Greek banks hold a huge amount of Greek government bonds in their portfolios, the S&P downgrade could trigger a liquidity crisis in the Greek banking system if Greek banks can’t borrow against their government bonds as the European Central Bank. That bank has recently loosened its collateral standards to let Greek banks keep borrowing but the bank is clearly not happy at the prospect of letting that situation run on for very long.
Stock markets around the world are, not surprisingly, down today.
Related Posts
No related posts.
14 comments
Post a comment
Comments that include profanity, or personal attacks, or antisocial behavior such as "spamming" or "trolling," or other inappropriate comments or material will be removed from the site. We will take steps to block users who violate any of our terms of use. You are fully responsible for the content that you post.
I don’t mean to be offensive, last time when I checked, India’s sovereign debt was also rated junk. But everyone is lauding India’s greatness these days….
Greek bonds = “Greek tragedy”
Excuse me if I don’t trust S&P or Moody’s.
Hey Bobbyinbville,
I have some Greek bonds I would like to sell you. Now you trust them.
Hey Drevil,
I meant they should never have been as high as they were…
There was an article on Yahoo yesterday concerning another Greek tragedy. San Francsico. One third of all city employees make over 100k a year. And that doesn’t count their generous benefits. It’s almost 10,000 people there making 100k and up not only at the moment but for decades later after they retire. The former chief of police who quit last year walked away with over 500k for the 365 days he worked. Do the math for both him and the city as a whole. Or should it be hole because that’s where they are going along with California, the US, Greece and others who refuse to stop their reckless spending.
Several days ago Jim did a prediction
of the 3 possible roads that the Greek disaster can take. I’m going to stick to just 2 roads. Either they bite the bullet and come down hard on spending or else they slowly dissolve into a form of anarchy where some areas remain more or less civilized while other parts of the society disintegrate.
The first solution is not going to happen. No one else does it so why should the Greek be any different? That leaves the second.
Ed
That’s brilliant. I have not thought about it.
By the way, European literature is indeed pretty much about tragedies. They ALWAYS ended dead at just every story I read.
So what’s the problem? The Greeks got a consult with GS. But they apparently didn’t use one of Goldman’s strategies like having ACA Capital to game Moody’s ratings. Or maybe GS is shorting Greece and gave them questionable advice. Business as usual you know. After all the Greeks are sophisticated financiers and should know there are people betting against them.
Hey Bobbyinbville,
I figured. Just playin.
XY
The Germans probably feel it’s more a story of Faust than one by Aeschylus. And see it ending not with the “deus ex machina” of Goethe’s angels but with the perils of Thomas Mann’s “Doctor Faustus”.
Portugal is next.
XY,
India might also be rated as junk, but there is a big difference between India and Greece. India isn’t trying to play by the EU’s rules. More importantly the EU isn’t trying to make India follow its rules, and India’s currency can rise and fall on its own.
Is greek debt really the reson why the stock markets are down today. ? Isn’t the Greek problem about like a problem on a banana plantation… shrug who cares..
Is it maybe that the market was at a tipping point, and needed a rest, and that there are more problems to come in the EU, and with that a big jump in the USD ?