NEW YORK (CNNMoney.com) -- Moody's downgraded Greece's government bonds Thursday casting further doubt that the debt-laden country will be able to meet its May 19 deadline for refinancing 8.5 billion euros, or about $11.4 billion, in borrowings.
The credit rating agency cut its bond rating for Greece one notch, to an A3 level, citing "significant risk." A3 is still considered investment grade, although it's not an entirely high-quality credit level. Moody's cautioned that further downgrades are possible as it continues to review Greece's economic outlook.
"It is unlikely that the rating will remain at A3, unless the government's actions can restore confidence in the markets and counteract the prevailing headwinds of high interest rates and low growth that could ultimately undermine the government's ability to sustainably cut debt levels," said Sarah Carlson, Moody's vice president and lead analyst for Greece, in a statement.
The downgrade follows other worries about Greece being voiced by the European Union. The EU's statistical authority Eurostat said Thursday that it "is expressing reservation on the quality of the data reported by Greece."
Eurostat's latest report showed Greece's 2009 budget deficit was 32.3 billion euros, or about $43.2 billion. The deficit accounted for 13.6% of the country's gross domestic product, up from Greece's previous claims that it sat at 12.7%.
And the latest estimates still aren't final. Eurostat said it's likely the debt-to-GDP number is even higher and the country's debt crisis is worse than previously anticipated.
The news left Greek bond investors with a bad taste in their mouths Thursday, and an appetite for higher yields. In Thursday trading, the yield on Greece's benchmark 10-year bond surged to record highs of 8.8% -- a level so high it compares with bonds of third world countries.
Meanwhile, another measure of Greek debt -- the spread between the Greek 10-year note and Germany's 10-year bund -- widened by 575 basis points, or 5.75 percentage points. That's the highest level since Greece joined the eurozone in 2001. Investors look to Germany's bunds, as a benchmark measure for other European bonds, since Germany currently boasts the largest economy in the eurozone.
Concerns about Greece have plagued the markets for the last few months as investors worry that a default there could have a ripple effect on other strapped European countries and kill the chance of a global economic recovery.
The bad headlines leave the financial community speculating about a Greek bailout, and all that negative chatter, in itself, has become a market mover.
"In an odd way, that's news that's moving the market, but you don't know if it's real news," said Jim Vogel, head of agency debt research at FTN Financial. "We've moved beyond facts, into impressions and a certain degree of self-feeding loops that continue to hurt Greek spreads."
Stocks slumped Thursday when the trading community responded unfavorably to the latest reports from Moody's and Eurostat, and the dollar rose against the euro. Greece is one of 16 countries that make up the eurozone and use the euro as their currency.