Standard&Poor's downgrades Greece's sovereign debt rating

On Wednesday evening ratings agency Standard&Poor's (S&P) downgraded its long-term rating on Greece.

The Mediterranean country's long-term sovereign rating was cut to CCC+ from B-, with a negative outlook. The latter means that in the short-term a further reduction is more likely than an upgrade.

S&P cited the "highly uncertain" outlook for full-year economic growth in Greece as a result of the protracted negotiations between Athens and its official creditors.

Greece's gross domestic product (GDP) has already contracted 1% over the last six months and may do so more unless talks between the country and its creditors conclude soon.

In fact, so as not to default this same week the Athenian Treasury will need to exert moral persuasion to have insurance companies and mutual funds of commercial banks increase their Treasury bill holdings.

"Without deep economic reform or further relief, we expect Greece's debt and other financial commitments will be unsustainable," S&P wrote in a release.

The rating agency's analysts also highlight the fact the liquidity pressures to which Greek banks are being subjected. Since end-November 2014 Greek banks have seen approximately 14% of their deposit base evaporate. Help from the European Central Bank in the form of its Emergency Liquidity Assistance (ELA) has been critical in helping to plug the resulting funding gap.

However, said ELA financing - which is now estimated to be close to 7% of GDP - "remains subject to frequent reviews by the ECB Governing Council."

Commenting on the rating action, analysts at Barclays wrote: "we continue to think that the direct costs of a Greek default and exit appear manageable but contagion would create near-term stress in risky assets, especially in fragile periphery economies such as Portugal, Spain and Italy, even if a Greek exit did not lead to a break-up of EMU."

As of 17:19 the yield on 10-year Greek government bonds was moving higher by 16 basis points to 11.82%.