ATHENS, Greece — Moody's Investors Service slashed Greece's credit rating to junk status on Monday in a new blow to the debt-ridden country that is under intense international scrutiny after narrowly avoiding default last month.
A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status. Standard & Poor's did the same in late April.
The downgrades reflect concern that the country could fail to meet its obligations to cut its deficit and pay down its debt — which the Greek government says is out of the question.
In New York, traders seemed unfazed by the news, which only weeks ago would have sent stocks tumbling on fears that problems in Europe were worsening. But traders don't have any illusions about the financial problems Greece is facing.
A Greek Finance Ministry statement insisted that the recovery effort was on track.
It said the new cut "does in no way reflect the progress made in recent months, nor the prospects emerging from fiscal improvement and better competitiveness."
The downgrade came as a delegation from the European Union and the International Monetary Fund started an interim review of the country's efforts to pull itself out of its major debt crisis.
After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro 110 billion bailout. It is to receive the second in September, pending implementation of a major austerity program that has sparked strong union reaction and a series of damaging strikes.
"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.
"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels." "Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."
The gap, technically known as a spread, between Greek 10-year bond yields and their benchmark German equivalents dipped slightly late Monday, just before the rating cut. The difference was at 5.91 percent, down from 6.12 percent earlier in the day.
That means that Greece would have to pay a rate of around 9 percent were it to raise cash through bond issues. However, bolstered by the rescue loans, Athens says it has no plans to try selling its bonds to the markets soon — except for short-term treasury bill issues in July.