S&P downgrades Greek debt to junk status

By Chavon Sutton, staff reporter


NEW YORK (CNNMoney.com) -- Standard and Poor's downgraded the sovereign debt ratings of Greece to junk status Tuesday, and lowered the investment grade status of Portugal, citing weak "macroeconomic structures" for the debt-troubled European nations.

Greece's long-term sovereign debt rating was reduced to a rating of "BB+" from "BBB+." The short-term rating was lowered to "B" from "A-2."

It was the second downgrade in as many weeks for the beleaguered Greeks.

"The downgrade results from our updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory," said Marko Mrsnik, an S&P credit analyst, in the report.

S&P also said that it believes the Greek government's policy options are narrowing, amid growing pressures for stronger fiscal adjustment.

Separately, Portugal's rating was reduced by two-notches to "A-" from "A+," which is still considered investment grade. The rating agency cited "amplified fiscal risks" as a primary concern.

"We expect the Portuguese government could struggle to stabilize its relatively high debt ratio over the outlook horizon until 2013," said Kai Stukenbrock, a credit analyst, in the report.

The rating agency added that it has downwardly revised its growth forecast for Portugal, expecting economic activity in the nation to stagnate this year.

S&P placed a negative outlook on both countries, signalling the possibility of further downgrades.

The U.S. stock markets plummeted on the news and the yield on Greek bonds surged to unprecedented levels since the introduction of the euro in 2002. The 10-year note yielded 9.76% on Tuesday, up more than 2% from the previous day's close.

The downgrades came after Greece last week announced it would finally tap a European Union-International Monetary Fund sponsored $53 billion bailout plan.

According to Peter Boockvar, equity strategist for Miller Tabak & Co., Greece's fiscal problems have been bubbling under the surface since November. But much like the subprime debacle that began to brew in 2007, the markets largely ignored the problem until it got out of control.

"These aren't Third World nations," says Boockvar. "Seeing it (the problems) spill over into developed Western European nations is a big deal for these countries, the region, and the European banking system."

Despite Greece's plea for help, bond yields for the country and other so-called PIIGS nations -- Portugal, Italy, Ireland and Spain -- have widened drastically, as fears of debt crisis contagion in Europe spread.

Multi-billion dollar aid packages alone won't be enough to hurdle the long-term problem of massive leverage and slow economic growth, said Boockvar.

Questions about whether Greece will fall from the eurozone have surfaced. But French Foreign Minister Christine Lagarde attempted to allay those fears in a Monday interview with PBS's Charlie Rose.

"Greece is part of the Euro group and there's no way that a member of the Euro group is going to be let down," said LaGarde. She also said that the EU and IMF had no intention of stretching Greece's debt repayment terms.

Whatever happens, investors and banks holding Greek and Portuguese debt have a long, hard road ahead.

"They need a debt restructuring for the long-term sake of the countries," said Boockvar. "Bond holders are likely going to have to take a haircut."

-- staff writer Aaron Smith contributed to this report To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.36%4.24%
15 yr fixed3.39%3.26%
5/1 ARM3.36%3.27%
30 yr refi4.34%4.22%
15 yr refi3.38%3.24%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 5:17pm ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Sponsors

Sections

General Mills has scrapped a controversial change to its fine print that some read as eliminating customers' right to sue the company. More

Obamacare sign ups hit 8 million, though final enrollment remains to be seen. More

Office for iPad move is a symbolic victory for Nadella's Microsoft, but the company is still weighed down by many of the same old issues. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

As Detroit moves closer to reaching a bankruptcy deal, retired civilian workers are poised to be left worse off than firemen and police officers. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.