S&P Cuts Greek Debt 2 Notches Deeper in Junk, Cites 50% to 70% Haircuts; CDS at Record High, Probability of Default is 68%

Last week Trichet reiterated for the nth time "restructuring is not on the agenda". This follows his February pronouncement the "whole world" approves the bailout program.

Today, once again, the market refuses for the nth time to believe Trichet's nonsense, and Credit Default Swaps on Greek debt and Irish debt hit a new record high. Greece is now the lowest rated country in Europe.

S&P Cites Principal Reductions of 50 Percent or More

Please consider Greek Debt Rating Cut to B by S&P on Restructuring Concerns

Greece’s credit rating was cut two levels to B from BB- by Standard & Poor’s, which said further reductions are possible as the risk of default rises.

Another cut would make Greece the lowest-rated country in Europe as today’s move left it even with Belarus after the fourth reduction by S&P since April 2010. The yield on Greek 10- year bonds rose 12 basis points to 15.6 percent, more than twice the level of a year ago when Greece accepted a bailout.

The S&P decision came on the first business day after an unannounced Friday evening meeting of European finance ministers May 6 in which they agreed Greece needed more help to avoid a restructuring. Extended repayment terms and demands for collateral may be part of a new aid plan.

“The downgrade reflects our view of increasing sentiment among Greece’s key euro-zone official creditors to extend the debt payment maturities of their 80 billion euros ($115 billion) of bilateral loans pooled by the European Commission,” S&P said in an e-mailed statement.

Greece missed its deficit target for last year, reporting a shortfall of 10.5 percent, versus a target of 9.6 percent. Achieving 2011 targets “is uncertain” and the government “may see a restructuring of official and commercial debt as the best way forward,” S&P said.

“Our projections suggest that principal reductions of 50 percent or more could eventually be required to restore Greece’s debt burden to a sustainable level, given trend growth potential of the Greek economy,” S&P said. The company left its recovery rating on Greece unchanged at 4, indicating investors would recover 30 percent to 50 percent in a default.

CDS Rise to Record, Suggest 68% Probability of Default

Bloomberg reports Greek Bonds Lead European Slide, CDS Rise to Record, After S&P Downgrade

Credit-default swaps on Greek debt rose 19 basis points to a record 1,360, according to CMA, signaling a 68 percent probability of default within five years. Swaps on Ireland reached an all-time high of 676 basis points, and contracts on Portugal also rose.

German 10-year bonds rose for a third day, pushing the yield on the securities back below that on similar-maturity U.S. Treasuries. They yielded three basis points less than their American counterpart, after exceeding them last week for the first time since 2009.

Germany may consider more help for Greece under stringent conditions to avoid a restructuring, which would risk an “even bigger problem than we have already,” Michael Meister, the parliamentary finance spokesman for Merkel’s Christian Democratic Union, said in an interview in Berlin today.

Greece Joins Belarus as Lowest-Rated Country in Europe

Inquiring minds note that Greece Joins Belarus as Lowest-Rated in Europe After S&P Cut

Greece’s credit rating was cut two levels to B from BB- by Standard & Poor’s, which said further reductions are possible as the risk of default rises.

Another cut would make Greece the lowest-rated country in Europe as today’s move left it even with Belarus after the fourth reduction by S&P since April 2010.

Ireland and Portugal followed Greece in seeking bailouts as investors shunned the debt of the region’s other high-deficit nations, driving up their borrowing costs. Credit-default swaps on Ireland also reached an all-time high of 676 basis points and contracts on Portugal rose.

“One by one, they will all need to renegotiate,” said Bill Blain, co-head of strategy at broker Newedge in London. “As Europe’s most peripheral economy, Greece is just a canary in the coal mine.”

ECB Wants Collateral For More Aid

Whatever the emergency meeting was supposed to accomplish last Friday, it clearly didn't. For more details, please see ...

EU Seeks Collateral for More Greek Aid; Trichet Reiterates Restructuring "Not on the Agenda", Market Reiterates "Trichet is a Pompous Fool"

Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister says "When it becomes serious, you have to lie"

That the ECB is discussing collateral is a sure sign that regardless of what they say, they realize Greece is going to default.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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