Bloomberg 14 Gennaio 2009

Greece had its sovereign credit rating lowered one step by Standard & Poor’s, which cited the country’s weakening finances.

The rating was cut to A- with a “stable” outlook, S&P said today in a statement from London. Greek stocks and bonds fell after the announcement.

The fallout from the global credit crisis is battering the European economy, prompting ratings companies to reassess the risk to investors of holding the debt of some governments. S&P said Jan. 12 Spain faced “significant challenges” and may have its top AAA classification lowered. Portugal may also have its AA- rating lowered, S&P said yesterday.

“The ongoing global financial and economic crisis has, in our opinion, exacerbated an underlying loss of competitiveness in the Greek economy,” a team of S&P analysts led by London- based Marko Mrsnik said in today’s statement.

Greek bonds erased gains after the decision, with the yield on the benchmark 10-year note rising two basis points to 5.38 percent. The ASE Index of stocks extended losses, falling as much as 5.5 percent, the most in more than two months.

Heaviest Debt Load

Sliding support for the government of Prime Minister Kostas Karamanlis hampered Greece’s ability to ride out the economic slowdown by taking measures such as cutting spending. The nation, which adopted the euro in 2001, has the heaviest debt load in the 16-member region after Italy, forecast by the government to increase to more than 91.4 percent of gross domestic product in 2009. It may breach 100 percent by 2011, S&P said.

The cost of hedging against losses on Greek government debt rose 14 basis points to 246 today, according to CMA Datavision prices for credit default swaps. Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. An increase signals deterioration in the perception of credit quality.

Source > Bloomberg | Jan 14