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From: lizhou zhu on 23 Jul 2010 21:39
Downgrading of debt

On 27 April 2010, the Greek debt rating was decreased to the first
levels of 'junk' status by Standard & Poor's amidst fears of default
by the Greek government.[30] Yields on Greek government two-year bonds
rose to 15.3% following the downgrading.[31] Some analysts question
Greece's ability to refinance its debt. Standard & Poor's estimates
that in the event of default investors would lose 30–50% of their
money.[30] Stock markets worldwide declined in response to this
announcement.[32]

Following downgradings by Fitch, Moody's and S&P,[33] Greek bond
yields rose in 2010, both in absolute terms and relative to German
government bonds.[34] Yields have risen, particularly in the wake of
successive ratings downgrading. According to the Wall Street Journal
"with only a handful of bonds changing hands, the meaning of the bond
move isn't so clear."[35] As of 6 May 2010, Greek 10-year bonds were
trading at an effective yield of 11.31%.[36]

On 3 May 2010, the European Central Bank suspended its minimum
threshold for Greek debt "until further notice",[37] meaning the bonds
will remain eligible as collateral even with junk status. The decision
will guarantee Greek banks' access to cheap central bank funding, and
analysts said it should also help increase Greek bonds' attractiveness
to investors.[38] Following the introduction of these measures the
yield on Greek 10-year bonds fell to 8.5%, 550 basis points above
German yields, down from 800 basis points earlier.[39]
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