Greek crisis fears deepen

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- The yield on Greek bonds soared to record levels again, a day after Standard & Poor's slashed its debt rating on the country to junk and amid reports that the IMF is considering more loans to the beleaguered country.

The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the euro in 2002.

The jump in the yield on the Greek bond has led to an enormous spread, of 8.22 percentage points, compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday.

"The catalyst for this has been continued uncertainty regarding the conditions of the Greek bailout, and the shifting of focus towards the longer term sustainability of the Euro area as a whole," said Martin Harvey, European bond analyst for Threadneedle in London.

Harvey said that the most "worrying development" is the "contagion" of Greek bond weakness into other markets.

The turmoil was felt across the Atlantic, as investors bailed out of U.S. stocks. The Dow Jones industrial average plummeted 213 points, or 1.9%, on Tuesday.

Concerns about Greece have been plaguing international markets for months. Investors are worried that if Greece defaults on its loans, the repercussions could have a ripple effect on other countries and kill the chances for a global recovery.

The chief catalyst behind the market turmoil came from Tuesday's decision by S&P to slash the Greek bond rating to "BB+" with a negative outlook, knocking it down to junk status. This was its second rating cut in as many weeks.

An unnamed Greek official said Wednesday that the International Monetary Fund might provide his country with an additional loan of up to about $13 billion, according to news reports. This is in addition to its promised loan of nearly $20 billion.

In addition, the European Union has pledged nearly $40 billion at a 5% rate. The impetus for the loan was to help the Greek government redeem bonds that mature on May 19.

Also on Tuesday, S&P cut its rating on Portugal by two notches to "A-," raising worries that the crisis would spread to the so-called PIIGS. In addition to Greece, they include Portugal, Ireland, Italy and Spain. To top of page

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