Markets rattled by downgrade; euro falls
Greece led a surge in the cost of insuring European government bonds yesterday as Standard & Poor’s cut its credit rating on concern the country is heading for a “selective default” by extending debt maturities.
Credit default swaps on Greece jumped 30 basis points to a record 1,371 basis points, according to CMA. Swaps on Ireland reached an all-time high of 681 basis points and contracts on Portugal also rose.
“One by one, they will all need to renegotiate,” Bill Blain, co-head of strategy at broker Newedge in London, told Bloomberg.
“As Europe’s most peripheral economy, Greece is just a canary in the coal mine.”
Swaps on Ireland climbed 22 basis points, according to CMA. Contracts on Portugal rose 16.5 basis points to 659, approaching the record 681 set April 26.
Greek bonds also dropped yesterday, leading declines by the se- curities of Europe’s most indebted nations.
The losses pushed the extra yield, or spread, that investors demand to hold the debt instead of similar-maturity German bunds to the most in almost two weeks.
German bunds rose on demand for the safest assets and data showed European investor confidence fell more than economists predicted this month.
The yield on the Greek security climbed 13 basis points to 15.63 percent. The spread over German bunds widened 20 basis points to 1,253 basis points, the most since April 27. The two-year note yield fell 10 basis points to 25.24 percent.
The euro turned down against the dollar in US trading yesterday, touching its lowest level in two weeks, after S&P’s decision, reviving worries that peripheral debt problems will force European officials to change the terms of its bailouts.