Ireland, also at risk of further downgrades based on its outlook at S&P, may fare better than Greece as the country has the "economic resilience and adaptability to face up to its challenge," Kraemer said.
European Union policy makers intends to approve "comprehensive" package of measures at a March 24-25 summit in a bid to restore confidence in bond markets. This may include setting up a permanent rescue facility, known as the European Stability Mechanism, which will take over the existing mechanism after 2013.
Credit ratings of some euro-region countries, particularly Greece and Portugal, will also depend on the outcome of the summit, Kraemer said.
Yields Climb
"Our concerns about features that we believe will be part of it have to do with the preferred credit status effectively subordinating senior bondholders, and also the possibility to introduce conditionality for lending that would entail the restructuring of commercial debt," said Kraemer. "Both of those we would consider bad news for bondholders."
As a consequence, S&P "would consider downgrading ratings of countries that are possible clients of the ESM after 2013," he said. "These countries, in the first instance, are Portugal and Greece."
The yield on 10-year Greek bonds jumped as much as 52 basis points to 12.85%, the most since Bloomberg began collecting the data in 1988, with the increase in yields the biggest since Oct. 27. It was at 12.84% as of 5 p.m. in London. The 6.25% securities maturing in June 2020 fell 2.04, or 20.4 euros per 1,000-euro ($1,389) face amount, to 65.29.
The extra yield investors demand to hold the securities instead of German bunds widened to as much as 956 basis points, the most since Jan. 10. The euro fell 0.4% to $1.3912.
Credit-default swaps insuring Greek government bonds rose five basis points to an all-time high 1,037 basis points, meaning it costs $1.04 million annually to insure $10 million of debt for five years. They ended the day seven basis points lower at 1,025 basis points.