Greek Bonds May Fall After S&P Signals It May Add to Rating Cut
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By Beth Mellor
Dec. 17 (Bloomberg) -- Greek bonds may fall after Standard & Poor’s cut the country’s credit rating and threatened to take further action unless Prime Minister
George Papandreou tackles the European Union’s largest budget deficit.
The rating was lowered by one level to BBB+ from A-, S&P said in a statement yesterday after bond markets closed. Fitch Ratings cut Greece’s debt to the same level on Dec. 8. The yield on the benchmark 10-year Greek government bond has increased 52 basis points this month to 5.51 percent. Papandreou pledged on Dec. 14 to implement “radical” measures to fix the budget.
“The market is telling you that there’s concern at the implementation of the plans,” said
Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There’s a lot of positive talk from Greek officials going round, but the market needs to see some action.”
Papandreou’s government, which came to power in October promising higher spending and wages, is trying to persuade
investors it will step up efforts to cut its deficit to below the EU’s limit of 3 percent of gross domestic product by 2013, from 12.7 percent now. Concern that countries may default was reignited after Dubai’s state-owned Dubai World said it wanted to restructure $26 billion of debt.
Greece’s “ratings could be further lowered if the government is unable to gain sufficient political support to implement a credible medium-term fiscal consolidation program,” Marko Mrsnik, a credit analyst at S&P in London, said in yesterday’s statement.
Deficit Plan
Greek bonds, the highest-yielding in the euro region, recovered some of their losses yesterday after Finance Minister
George Papaconstantinou said in an interview that the country will cut its 2010 budget deficit by 4 percentage points more than previously targeted.
The yield on Greek 10-year government bonds fell 22 basis points. The 6 percent security maturing in July 2019 rose 1.6, or 16 euros per 1000-euro ($1,441) face amount, to 103.48. The yield on the two-year note slid 25 basis points to 3.12 percent.
S&P’s decision came after it put Greece’s rating on watch for a downgrade on Dec. 7. Greece’s ranking is the lowest in the euro region and three steps short of non-investment grade, or junk. Moody’s Investors Service has an A1 rating on Greece’s debt, three levels higher than the Fitch and S&P grades.
“BBB+ for a country is worrying,” said
Emeric Challier, a fund manager at Avenir Finance Investment Managers in Paris, where he helps manage about $840 million in debt. “It’s an important surprise coming from S&P. We didn’t expect it this soon.”
Spread Narrows
The premium, or
spread, investors demand to hold Greek 10- year bonds instead of German bunds, Europe’s benchmark government securities, rose to 250 basis points on Dec. 15, the highest closing level since April 2. It narrowed to 232 basis points yesterday.
Papandreou on Dec. 14 outlined his government’s four-year plan to cut the shortfall below the EU’s ceiling, appealing to unions and employer groups to help him change pension and tax rules to deliver “radical” action.
EU officials are trying to assure markets that Greece won’t default on its debt and at the same time keep up pressure on the country to tackle its deficit. German Chancellor
Angela Merkel said Dec. 10 Europe has a “responsibility” to help Greece. A day later, European Central Bank President
Jean-Claude Trichet said the country must take “courageous action.”
To contact the reporter on this story:
Beth Mellor in London at
[email protected]
Last Updated: December 17, 2009 02:10 EST
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