Moody’s doesn’t see Greek default

The eurozone economies of Greece, Portugal and Ireland are likely to avoid sovereign bond defaults due to their strong domestic investor base of local banks and pension funds that will buy their governments’ debt even in times of stress, according to ratings agency Moody’s. The US rating agency says investors should not worry about losses from bond defaults in these three so-called peripheral eurozone economies, considered the weakest in the 16-nation bloc. Despite rising bond yields in the periphery in the past week because of growing fears over the health of these economies, the agency said an analysis of the 20 sovereign defaults since 1997 suggested they would ride out their problems. «For a number of reasons, the prospect of a sovereign default in one of the major industrial countries is quite low,» said Daniel McGovern, managing director of Moody’s sovereign risk group. Critically, this is due to the size and sophistication of these countries’ bond markets, which are relatively deep as they benefit from a strong base of domestic financial institutions. Meanwhile, the Greek 10-year bond yield surged 17 basis points to 11 percent yesterday, after climbing as high as 11.1 percent, the highest level since September 23. The Greek-German spread rose 20 bps to 842 bps, the highest since September 28. Irish bonds also fell, driving the extra yield investors demand to hold the securities instead of German debt to a record, on mounting concern the nation will struggle to reduce its budget deficit. Irish 10-year bonds fell for a sixth consecutive day as Finance Minister Brian Lenihan tries to put together a 2011 budget by early December that will convince investors he can get the country’s finances in order.

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