Moody’s Downgrades Greek Credit Rating AGAIN, Credit Default Swaps Jump

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The cost of insuring Greek debt rose on Thursday morning after the debt-laden country suffered another credit-rating downgrade.

The three-notch-downgrade takes Greece from B1 to Caa1, giving the country a worse credit rating that Montenegro.

On Wednesday night Moody’s dealt another blow to Greece with a further downgrade that pushed its bonds deeper into junk territory. The downgrade places Greece at the very bottom of Moody’s league table of credit-worthy European countries.

Five-year credit default swaps (CDS) on Greek government debt rose 40 basis points to 1,470 basis points, according to data monitor Markit. This means it costs €1.47m euros to protect €10m of exposure to Greek debt.

The cost of insuring Portuguese debt against default rose by 15 basis points to 700 basis points.

The three-notch-downgrade takes Greece from B1 to Caa1, giving the country a worse credit rating than Montenegro.

Moody’s said it was very concerned about Greece’s “highly uncertain growth prospects” and warned that the embattled country is “increasingly likely to fail to stabilise its debt ratios” by the deadline set by its previous €110bn (£96.7bn) bailout.

Representatives of the “troika” – the EU, IMF and European Central Bank – are in Athens inspecting Greece’s assets ahead of giving the go-ahead for the next cash injection of international aid.

Greece is due to receive a €12bn injection from Europe and the IMF on June 29 as part of the international bail-out programme. Delivery of the cash is subject to a progress report on asset sales and spending cuts by the international authorities.

Tension is mounting in the markets ahead of their decision – which is expected before the weekend.

On Wednesday there were further reports that the IMF will not sanction the next tranche.

German ministers were forced to reassure the market that the EU and the IMF were committed to the bailout. Martin Kotthaus, a German finance minister, said: “It was designed jointly. It will be evaluated jointly, and I also assume that it can only be continued jointly, including when it comes to the question of payouts of future tranches.”

Last week, European markets were rattled when Jean-Claude Juncker, who chairs the eurozone finance ministers, said Greece could be disqualified from claiming part of its next cash injection. Mr Juncker, who is also Luxembourg’s prime minister, said Greece would be unlikely to guarantee its funding over the next 12 months, preventing the IMF from releasing funds under its own rules.

Greece’s commitment to a sale of its assets is key to restoring confidence in the bail-out.

Germany’s Mr Kotthaus said on Wednesday: “It must be made crystal clear how these privatisation announcements and plans can be executed concretely, tangibly, and comprehensively so that all further delays and such can be avoided.”

By Louise Armitstead
12:17PM BST 02 Jun 2011

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