S&P downgrades Spain..uh oh..

http://www.reuters.com/article/idUSNYE00281720100428

U.S. Treasuries trimmed losses on Wednesday, after Standard & Poor’s downgraded the debt rating of Spain to ‘AA’ and slapped the country with a negative credit outlook.

Spain’s downgrade came a day after rating downgrades on Greece and Portugal, renewing some safety demand for Treasuries, German Bunds and other low-risk assets.

Benchmark 10-year Treasury notes US10YT=RR were down 9/32 in price to yield 3.72 percent, up from 3.69 percent.

http://dealbook.blogs.nytimes.com/2010/04/28/spains-debt-rating-cut-as-finance-officials-meet/

The ratings agency Standard & Poor’s lowered the debt rating of Spain on Wednesday, its third downgrade of a European country in two days, The New York Times’s Landon Thomas Jr. reports.

The downgrade came one day after S.& P. cut the ratings of Greek and Portuguese debt, moves that set off a flight by investors away from global equities and into fixed income securities, particularly those in United States dollars.

The news Wednesday set off no such reaction, although an index of Spanish stocks fell about 3 percent. S.& P. downgraded Spain’s debt one step, to AA, with a negative outlook.

With Greece inching closer to the brink of financial collapse, fear that the debt crisis will spread rattled global markets for a second day on Wednesday as investors awaited a signal from financial leaders gathering in Berlin.

Shares slumped 1 to 2 percent across much of Europe and Asia, and the euro briefly fell to its lowest level in about a year against the dollar, as investors worried that Portugal, Spain and even Ireland might not be able to borrow the billions of dollars they need to finance their government spending.

Market sentiment began to steady in afternoon trading in Europe, with the FTSE 100 index in London turning positive.

Investors have grown increasingly nervous about the fate of Greece and other economies that use the euro. A recent proposal by European governments to extend a 45 billion euro loan to help Greece pay its bills, together with a smaller pledge by the International Monetary Fund, has done little to calm the markets. Germany’s statement this week that it must first see more deficit reduction from Greece before fulfilling its pledge has only increased concerns that Europe is not united behind Greece.

“It’s like Lehman Brothers and Bear Stearns,” said Philip Lane, a professor of international economics at Trinity College in Ireland, referring to the Wall Street failures that propelled the financial crisis of 2008. “It is not so much the fundamentals as it is the unwillingness of the market to fund you.”

“The situation is deteriorating rapidly, and it’s not clear who’s in a position to stop the Greeks from going into a default situation,” said Edward Yardeni, president of Yardeni Research. “That creates a spillover effect.”

In Lisbon, Prime Minister José Sócrates said the Portuguese government would begin some fiscal consolidation measures this year that were initially planned for 2011, Reuters reported. Mr. Sócrates, a leader in the Socialist party, made the comments after a meeting with an opposition leader, Pedro Passos Coelho of the Social Democratic party. The Socialists will work with Social Democrats to respond to “a speculative attack on the euro and Portuguese debt,” Mr. Sócrates was quoted saying.

The German finance minister, Wolfgang Schäuble, was meeting the head of the International Monetary Fund, Dominique Strauss-Kahn, and the European Central Bank president, Jean-Claude Trichet, in Berlin Wednesday on Greece’s request to free up an international bailout.

“I don’t want to hide behind a rosy picture. It’s not easy,” Mr. Strauss-Kahn said at a news conference afterward, Reuters reported. “Every day which is lost is where the situation is going worse and worse.”

German lawmakers told reporters after the I.M.F. briefing that Greece will receive much more aid than initially expected, between 100 and 120 billion euros over three years. Mr. Strauss-Kahn declined to comment on the report.

Earlier, the European Union President, Herman Van Rompuy, sought to calm nerves, stating during a trip to Tokyo that Greece should be able to receive financial aid soon to help ease its burgeoning debt load and keep the euro zone stable.

Later in the day, Mr. Strauss-Kahn was expected to join Chancellor Angela Merkel and heads of the World Bank, the World Trade Organization, the International Labor Organization and the Organization for Economic Cooperation and Development for a gathering that was previously scheduled but fortuitously timed to consider Greece’s increasingly dire situation.

Ángel Gurría, head of the O.E.C.D., said ahead of the meeting that the euro zone countries had to act “very fast.”

“It’s not a question of the danger of contagion,” he told Bloomberg television. “Contagion has already happened. This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”

The problem is that it is not just Greece, which expects to receive international aid, but Portugal, Spain and other countries that must issue more debt soon.

“The issue is rollover risk,” said Jonathan Tepper of Variant Perception, a research group based in London and known for its bearish views on Spain. “Spain has to issue new debt to the tune of 225 billion euros this year. Forty-five percent of their debt is held by foreigners. So they are dependent on the kindness of strangers.”

Stock markets in Europe began to tumble late Tuesday after Standard & Poor’s cut Greece’s debt to junk level, warning that bondholders could face losses of up to half of their holdings in a restructuring. The agency also downgraded Portugal’s debt by two notches.

On Wednesday, Greece’s securities market regulator banned all short-selling on the Athens stock exchange for the next two months as investors sold off Greek assets following the downgrade.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down Wednesday more than 2 percent in early trading before recovering somewhat by midday; it dropped 3.7 percent on Tuesday.

In afternoon trading, the FTSE 100 in London was up 34 points, or 0.6 percent. The DAX in Frankfurt was down 10.05 points, or 0.2 percent, while the CAC-40 in Paris was flat.

Japan’s Nikkei index was down 2.6 percent, while the Hang Seng index in Hong Kong was down 1.5 percent Wednesday.

The euro fell to $1.3143 before bouncing back to $1.3237.

The yield on the 10-year Greek government bond narrowed to below 10 percent, having earlier surged through 11 percent, or more than three times the level of comparable German bonds. But it still closed higher on the day, alongside bonds of Portugal, Ireland, France, Italy and Spain.

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we said we had to watch spain yesterday..and bingo..a downgrade..spain could be the catalyst for a full blown debt crisis..any more significant downgrades to spain or portugal will see  huge sell offs on the share market..

401

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~ by seeker401 on April 30, 2010.