(Bloomberg News) Greece had its credit rating cut three levels by Standard & Poor's, which branded the nation with the world's lowest debt grade and said a restructuring looks "increasingly likely."
The move to CCC from B reflects "our view that there is a significantly higher likelihood of one or more defaults," S&P said in a statement today. "Risks for the implementation of Greece's EU/IMF borrowing program are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required."
The downgrade follows Moody's Investors Service's decision this month to grade Greece only one level higher and may intensify pressure on European governments to stem the region's sovereign-debt crisis. Credit-default swaps on Greece, Ireland and Portugal surged to records today on concern governments' struggles to resolve the turmoil will threaten their ability to pay off their debts.
"The ratings agencies are now playing catch up with the market," said Gianluca Salford, a fixed-income strategist at JP Morgan in London. "The market is pricing in a very high probability that there will be a credit event around Greece. The agencies are just catching up to the negativity that's already priced in by the market, not the other way around."
Greek Swaps
Swaps on Greece jumped 47 basis points to an all-time high of 1,610 as of 5:30 p.m. in London after the S&P downgrade, according to CMA. Contracts on Ireland soared 27 basis points to 740, Portugal climbed 22 to 764 and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 7 basis points to 218, approaching the record 221.75 set Jan. 10.
The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity was at 1,402 basis points today, close to a record.
No other sovereign nation is graded as low as CCC by S&P, a spokesman said by e-mail. Moody's cut its rating on Greece on June 1 to Caa1, leaving only Ecuador as a worse sovereign risk.
The downgrade comes as the European Central Bank and Germany battle over how to bail out Greece and whether officials should push creditors to share some of the costs. ECB President Jean-Claude Trichet said today that his advice to European governments is to "avoid what would be a compulsory concept" and "avoid whatever would trigger" a default.
Negative Outlook