Greece down the pan — will Portugal follow?

Bond and stock markets worldwide plummeted following Standard & Poor's downgrade of Greece to BB+ yesterday and the inclusion in its rating report that bondholders could lose up to 70% of their holdings in the event of a default. There is no liquidity in the market with two year Greek bonds yielding 17.5% and the May 2010 issue 52% (up from around 30% yesterday). Portugal also had its debt downgraded, to A- from A+, resulting in 10 year yields surging by 50bp. Ireland, Italy and Spain also felt the pinch, their bond yields rising by 19bp-20bp. No decision on the EU/IMF rescue package is due until May 10 so the rollercoaster will continue. Read EuroWeek on Friday for up to date news and views on the unfolding European saga.