Moody's cut Greece's government-bond rating on Monday, slashing the country's rating four levels to Ba1, officially on notch into junk status. Markets reeled on the news, US Treasury prices pared losses and Asian stocks fell for the first time in four days. Japan's 5-year treasury notes rose for the 2nd day and gold rose on the flight to safety.The Euro largely shrugged off the release, as Moody's intent to downgrade was known long in advance and an Industrial Production data release in the Euroarea showed the 16 nation bloc beating expectations. The euro climbed above $1.225 on Monday.
Moody's explained its reluctance on the debt-laden Mediterranean nation, saying that while the burgeoning combined European Union / International Monetary Fund aid packages Greece is receiving eliminate near-term liquidity risk, the "implementation risks" of the aid program are "substantial." Moody's was referring to a strict regimen of austerity measures adopted by the Greek Parliament amid rampant street protest earlier last month, meant to tighten a swelling fiscal deficit which was twice the European bloc's allowed limits.
In related news, Treasury Secretary Carlos Ocaña of Spain spoke publicly Monday on the nation's banks' liquidity issues. Tne big worry has been the increasing difficulty Spanish banks have faced borrowing from other banks in the so-called interbank lending market. Spanish banks' credibility and therefore ability to secure funding has suffered after the country took in massive losses amid a steep downturn in the country's real-estate market. Considering the series of strikes taking airwave time, highlighting Spanish people's opposition to a series of austerity measures last month, Spain is facing negative media attention.
There are however signs of the Sovereign Debt Crisis panic waning. Investors took note of a bullish data release that industrial production in the Eurozone grew more than expected in April (+0.8% month-on-month increase vs. +0.5% expected). And while short term treasuries saw a price spike, longer-term treasury yields, which move inverse to prices, stayed higher. Yields on 10-year US treasury notes rose to 3.33% in early London trading as prices fell more than 12.5 cents. Yields on 10- and 30- year treasuries had surged in recent weeks, reaching their lowest levels of 2010.
In-Depth Analysis
- Euro area: Another downgrade for Greece by Danske Bank
- Europe Ahead: UK CPI to retreat to the upper bound while Greece credit rating was downgraded to "junk" by ecPulse.com
- EURUSD downward after Greece turns junk, ZEW survey on tap by ecPulse.com
- Crude Pared Gains after Moody's Downgrade by Oil N' Gold Team
- Moody's Downgrades Greece to Junk Status by CMS Forex
- Risk Appetite Fueled by Euro Output Data Dented by Greece Downgrade by CMS Forex
- Euro debt crisis watch by Danske Bank
- The euro rises on upbeat data by ecPulse.com
Related News
- EUR/USD retreats amid Greece downgrade FXstreet.com
- Greek FinMin: downgrade doesn’t reflect recent progress ForexLive
Analyst comments
- T.J. Marta, chief market strategist at Marta on the Markets:
"The general sentiment is that the global economic expansion remains intact and will continue despite the European debt crisis. Barring cataclysmic developments, the risk reward is for higher yields both in the short and long terms."
- George Tchetvertakov, Head of Market Research at Alpari UK:
"This week’s debt auctions will act as an opinion poll of European debt markets. Default risk has abated but the large amount of nominal debt as well as a lack of information about who is carrying exposure is weighing on sentiment and preventing a rebalancing of bond yield spreads, CDS prices and more broadly, Libor rates. Ireland is due to issue €5bn on Tuesday, Spain €10bn and France €10bn on Thursday."
