S&P cuts Greece's debt rating to CCC, sees default risk rising 'significantly'
Credit rating firm Standard & Poor's cut Greece's debt grade to CCC on Monday, the lowest of any rated country, citing a "significantly higher likelihood of one or more defaults" by the Greek government.
S&P’s cut in Greece’s rating, from a previous grade of B, confirms what the Greek bond market has been signaling since March: that there’s no way out of the country’s debt morass without forcing bondholders to take some kind of haircut.
The annualized yield on two-year Greek bonds (charted below) rose back above 26% on Monday after falling as low as 22.7% early last week. The yield has rocketed from 14.4% in mid-March as the market price of the bonds has plunged. By contrast, U.S. 2-year Treasury notes pay 0.39%.
Though S&P said it expected more financial help for Greece from the rest of the euro-zone countries, it also said it believes that “some official creditors will see restructuring of commercial debt as a necessary condition to such additional funding.”
That’s an apparent reference to calls by German finance minister Wolfgang Schäeuble for private bondholders to assume a "fair" share of another Greek bailout.
S&P said that forcing “burden sharing” on private bondholders “could take the form of a debt exchange offer or an extension of debt maturities.”
In other words, bondholders wouldn’t be stiffed entirely. Nonetheless, “In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default,” S&P said.
S&P's debt ratings range from D, denoting a bond in default, to AAA, the highest-quality rating.
Euro-zone finance ministers are expected to meet in Brussels on Tuesday to discuss Greece and other sovereign-debt issues.
The euro currency is trading up against the dollar Monday despite S&P’s decision. The euro rose to $1.441 from $1.434 on Friday, though it’s down from nearly $1.47 last Tuesday.
-- Tom Petruno
Photo: Protesters raise their hands in front of the parliament in Athens during a rally against austerity economic measures and corruption, June 13, 2011. Credit: Pascal Rossignol / Reuters