S&P Downgrades US to Negative, Greek Fallout Risks "a Lehman-style chain reaction"
Bloomberg
Standard & Poor’s Puts ‘Negative’ Outlook on U.S. Rating
Standard & Poor’s put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.
“If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” New York-based S&P said today in a report that maintained its top rating on U.S. long-term debt while lowering the outlook to “negative” for the first time.
S&P said there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits...
Calculated Risk
Greece Bond Yields at Record High Following Default Comments
The yield on Greece ten year bonds jumped to 14.4% today and the two year yield is up to 19.6%...
...This report has been "dismissed" by Greek, EU and IMF officials, but it is widely expected that Greece will default (aka restructure). Many analysts expect the restructuring to include extending the duration.
Here are the ten year yields for Ireland up to 9.8%, Portugal up to a record 9.1%, and Spain at 5.6%.
Bloomberg
Greece Default Drive Risks Reviving Contagion as Bonds Plunge
European investors and politicians prodding Greece to restructure its debt may end up wishing they hadn’t.
Talk of restructuring spurred by Germany risks re-igniting Europe’s debt crisis, enveloping Spain just weeks after European leaders said bailouts of Greece, Ireland and Portugal ended contagion. Under a Greek default, Europe’s financial system would strain as banks in and outside Greece and holders of Greek bonds, such as the European Central Bank and domestic pension funds, tally losses.
“By restructuring Greek debt you also may precipitate a crisis in Spain,” David Watts, a strategist at CreditSights Inc. in London, said in a telephone interview. “At that point it doesn’t matter how much you’ve saved by restructuring Greece, the fallout from Spain is much greater. The issue comes back to not knowing the ultimate cost.”
Speculation by German officials that Greece may run out of alternatives to restructuring underscores their reluctance to spend more on bailouts, while ignoring precedent. Sovereign financial crises usually don’t come in isolation. Thailand’s 1997 devaluation triggered the Asian crisis, Russia’s 1998 default set off a global financial pandemic and Latin America required the U.S. to develop Brady bonds as a virtual guarantee.
The euro had its steepest decline in almost four months yesterday and Greek and Portuguese bonds tumbled, sending risk premiums to euro-era records as default speculation mounted. Otto Fricke, the parliamentary budget spokesman for Chancellor Angela Merkel’s Free Democratic Party coalition ally, said in an interview yesterday Greece may not make it through the summer.
‘Chain Reaction’
Such comments “signal a loss of patience” that makes rash action more likely and risks “a Lehman-style chain reaction to a potential Greek default,” Holger Schmieding, London-based chief economist at Joh. Berenberg Gossler & Co., said in a research note yesterday. “The contagion risks are still far too serious” as Spain and Ireland need more time to turn their fiscal positions around...
Standard & Poor’s Puts ‘Negative’ Outlook on U.S. Rating
Standard & Poor’s put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.
“If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” New York-based S&P said today in a report that maintained its top rating on U.S. long-term debt while lowering the outlook to “negative” for the first time.
S&P said there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits...
Calculated Risk
Greece Bond Yields at Record High Following Default Comments
The yield on Greece ten year bonds jumped to 14.4% today and the two year yield is up to 19.6%...
...This report has been "dismissed" by Greek, EU and IMF officials, but it is widely expected that Greece will default (aka restructure). Many analysts expect the restructuring to include extending the duration.
Here are the ten year yields for Ireland up to 9.8%, Portugal up to a record 9.1%, and Spain at 5.6%.
Bloomberg
Greece Default Drive Risks Reviving Contagion as Bonds Plunge
European investors and politicians prodding Greece to restructure its debt may end up wishing they hadn’t.
Talk of restructuring spurred by Germany risks re-igniting Europe’s debt crisis, enveloping Spain just weeks after European leaders said bailouts of Greece, Ireland and Portugal ended contagion. Under a Greek default, Europe’s financial system would strain as banks in and outside Greece and holders of Greek bonds, such as the European Central Bank and domestic pension funds, tally losses.
“By restructuring Greek debt you also may precipitate a crisis in Spain,” David Watts, a strategist at CreditSights Inc. in London, said in a telephone interview. “At that point it doesn’t matter how much you’ve saved by restructuring Greece, the fallout from Spain is much greater. The issue comes back to not knowing the ultimate cost.”
Speculation by German officials that Greece may run out of alternatives to restructuring underscores their reluctance to spend more on bailouts, while ignoring precedent. Sovereign financial crises usually don’t come in isolation. Thailand’s 1997 devaluation triggered the Asian crisis, Russia’s 1998 default set off a global financial pandemic and Latin America required the U.S. to develop Brady bonds as a virtual guarantee.
The euro had its steepest decline in almost four months yesterday and Greek and Portuguese bonds tumbled, sending risk premiums to euro-era records as default speculation mounted. Otto Fricke, the parliamentary budget spokesman for Chancellor Angela Merkel’s Free Democratic Party coalition ally, said in an interview yesterday Greece may not make it through the summer.
‘Chain Reaction’
Such comments “signal a loss of patience” that makes rash action more likely and risks “a Lehman-style chain reaction to a potential Greek default,” Holger Schmieding, London-based chief economist at Joh. Berenberg Gossler & Co., said in a research note yesterday. “The contagion risks are still far too serious” as Spain and Ireland need more time to turn their fiscal positions around...