Greece and Portugal: The Government bond crisis continues...

In article 12 of Reading and Understanding the Financial Times (page 64) I looked at the issue of a 50-year government bond issue by Greece from back in 2007. A that time they were able to issue these securities at a spread of just 30-35 basis points (see key terms on page 66 to see this concept fully explained) above the equivalent German government bonds. How things have changed since then! This week we have seen the leading agency S&P cut the sovereign credit rating of both Greece and Portugal. In relation to Greece the rating is down to BB- while Portugal's is a little better at BBB-. The result of these developments is that both Countries now face much higher borrowing costs. As a result of this downgrading the spread between Portuguese and German borrowing costs surged to 467 basis points. The Greek spread widened to 938 basis points.