Greece’s credit rating was cut four steps to non-investment grade, or junk, by Moody’s Investors Service, which cited the country’s economic “risks.”
The rating was lowered to Ba1 from A3, Moody’s said in a statement today from London. The outlook is stable, it said. Moody’s said the Ba1 rating “incorporates a greater, albeit, low risk of default.”
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“This doesn’t look good and I expect another round of sell-off,” said Christoph Rieger, co-head of fixed income strategy at Commerzbank AG in Frankfurt, Germany’s second largest bank. “A junk status means it will fall out of some benchmark indices. People who use those benchmarks are likely to sell.”
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The government in Athens said the downgrade by Moody’s doesn’t reflect the progress it has made in reining in its deficit. The package announced by Prime Minister George Papandreou includes wage and pension cuts and tax increases that have prompted street protests and strikes, including one in which three people died.
“Today’s downgrade of the Greek economy by Moody’s in no way reflects the progress achieved in recent months nor does it reflect the prospects being opened up by fiscal adjustment and the improvement of the country’s competitiveness,” the Greek Finance Ministry said in a statement. “The Greek government remains absolutely committed to the task of fiscal adjustment and improving the country’s growth prospects.”
Moody’s said the “macroeconomic and implementation risks” associated with the EU-IMF support program “are substantial and more consistent with a Ba1 rating.”
‘Considerable Uncertainty’
“There is considerable uncertainty surrounding the timing and impact of these measures on the country’s economic growth, particularly in a less supportive global economic environment,” Sarah Carlson, vice president-senior analyst in Moody’s sovereign risk group, said in the statement.
“It’s a significant downgrade,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “It’s not a surprise to people, but the timing and magnitude is what has taken Treasuries off the lows and is providing some support.”
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Moody’s today also downgraded its rating on the city of Athens to Ba1 from A3, citing “the uncertainties arising from current reforms on the city’s finances.” Athens and other Greek municipalities “are unlikely to have enough financial flexibility to permit their credit quality to be stronger than that of the sovereign itself,” it said.
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http://preview.bloomberg.com/news/2010-06-14/moody-s-downgrades-greece-to-ba1-from-a3-stable-outlook.html