The Euro was briefly under pressure after Moody’s credit ratings agency downgraded Greece late yesterday, cutting its bond rating down by three notches to Caa1 from B1, pushing it further into junk status.
Greece’s risk default has now been raised by fifty percent. Meanwhile officials from the EU-IMF and ECB are racing to put together the second bailout plan to stave off renewed financial turmoil in Europe.
Last year Greece was provided with its first bailout package of 110 billion euro provided. However this failed to prevent an investor exodus from Greece, and the country now faces a funding gap of 30 billion euros of bonds next year with yields on its 10 year bonds above 16 percent, placing Greece in a fast path to default.
“Taken together, these risks imply at least an even chance of default over the rating horizon,” Moody’s said in a statement. “Over five-year investment horizons, around 50 percent of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt-service requirements. Around 50 percent have defaulted.”
However, a recent wave of optimism has eased market concerns, as they believe that the second bailout package will be put together soon and with Germany’s recent announcement that it will make concessions to help with the aid, there is hope that Greece will not need to restructure its debt.
Markets were apparently expecting such a downgrade and already factored it in, and their optimism on the Greek rescue deal hasn’t faded yet so the common currency quickly rebounded. Over an hour into European trading, the Euro is currently trading at $1.4381 against the Dollar, an increase of 76 pips from yesterday’s low of $1.4306.