June 14, 2011
Greece was branded with the world’s lowest credit rating by Standard & Poor’s, which said the nation is “increasingly likely” to face a debt restructuring and the first sovereign default in the euro area’s history.
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 yesterday. “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.”
Greece’s government, which plans to sell 1.25 billion euros ($1.8 billion) of 26-week Treasury bills today, said that the downgrade overlooked “intense” talks between European officials to address the nation’s financing needs. Credit- default swaps on Greece, Ireland and Portugal surged to records yesterday on concern governments’ struggles to resolve the turmoil will threaten their ability to pay their debts.
“Greece will default -- it’s a question of when, rather than if,” Vincent Truglia, Managing Director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s, said in an interview. “It’s a basic solvency issue rather than a liquidity issue. Only a debt writedown will do.”
Swaps on Greece jumped 47 basis points to an all-time high of 1,610 as of 5:30 p.m. yesterday 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.
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