Fisher Investments Editorial Staff

Headline Hog

By, 02/26/2010

Story Highlights:

  • Three major credit ratings agencies announced they are considering cuts to Greek debt ratings.
  • Word that Greece is planning a bond issuance next week was met with concerns over pricing and the potential for under-subscription.
  • While the root concerns of these stories may center on legitimate issues, globally, their potential impact is likely less than feared.


Greek debt concerns once again hogged headlines Thursday as investors were left weighing one story after another—credit ratings jostled for position with swaps scandals and worrisome debt offerings.

Kicking things off, major credit ratings agencies Fitch and S&P announced they're considering an additional cut to their current BBB+ Greek debt rating. Moody's, the only leading credit rating agency that still rates Greek debt at A, followed suit, warning it may also downgrade in the next few months if Greek authorities don't act decisively to cut their growing deficit (over 12% of GDP last year, or four times EU limits). Moody's threats are especially potent, as ECB rules require at least an A- rating to accept debt as collateral—and Greek banks have used this exchange mechanism at the ECB (government bonds as collateral for loans) more than any other euro-zone country. While EU leaders have asserted they are unlikely to allow a Greek default, the ECB has yet to publicly soften their stance that they won't make regulatory exceptions for Greece. But is it really such a shock Greece is, as a nation, riskier than Germany? The downgrades are, in one way, a backward-looking reaction to facts already known.

Next up: News Greece plans a 10-year bond issuance next week, in hopes of raising €3 billion to €5 billion. Content to stand firm on relatively lower rates, Greek officials are likely risking a failed or undersubscribed auction—a headline-grabber if there ever was one these days. There's simply no good reason investors would want to purchase Greek debt over much-safer German bunds if the margin is too small. Where's the incentive? It would be worthwhile for Greece to take a lesson from Portugal, whose recent undersubscribed auction (rates were too low) was followed days later with an oversubscribed one at higher rates. We're seeing a pattern here.

Why stop there? Chairman Bernanke commented Thursday the Fed is reviewing Goldman Sachs' role in arranging currency swaps that may have helped hide some of Greece's escalating debt in recent years and contributed to current destabilization. In testimony to UK lawmakers earlier this week, the chairman of Goldman Sachs' regulated bank subsidiary contended the currency swaps "did produce a rather small, but nevertheless not insignificant reduction, in Greece's debt-to-GDP ratio" but were "in conformity with existing rules and procedures." And such practices probably weren't isolated to one nation—likely mitigating the concern, not exacerbating it.

Some new news, but mostly more of the same. Still, stocks had a jittery session Thursday, heading down significantly before reversing course and ending down just a bit. Likely, there will be more headlines about "hidden" debt in currency swaps and looming downgrades. But the facts don't change—Greece has a rough road ahead. That's bad mostly for Greece and might inconvenience the EU some, but beyond that, it's a tempest in an Ouzo bottle.


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.