Equities investors appeared to shrug off the news of Greece’s downgrade to “junk” bond status on Tuesday morning as U.S. stock market futures were up, reported Bloomberg.
On the flip side, the yield that investors demand to hold 10-year Greek bonds jumped 74 basis points to 9.08 percent. As investors lose more and more confidence in the Greek government’s ability to pay its debts, it will be harder for them to borrow to cover their short-term obligations, worsening the crisis.
Many experts, however, did not believe that Moody’s downgrade was in any way surprising. Gary Jenkins of Evolution Securities in London said to Bloomberg that “Greece being junk shouldn’t be a shock.”
Markets had a similarly strong start yesterday, but all three major indexes moderated their gains as the day wore on and then fell sharply after Moody’s Investors Service downgraded Greece from A3 to Ba1.
Another looming problem for Greece is a common investing policy of pension funds, mutual funds, and other supposedly secure investment vehicles. Many of these are required to hold investment-grade – Baa3, in Moody’s own alphabet soup of jargon – securities, and will now avoid any and all Greek debt, in addition to possibly jettisoning any Greek debt they already hold.
The rating agencies’ tardiness in reassessing their analysis of major debtors like Greece can cause major problems for these funds when they are forced by their own policies to sell under-performing assets at a loss.
Risk Disclosure
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.