What started as a wild week for the Global X FTSE Greece 20 ETF (NYSEArca: GREK) will end that way as the lone Greece ETF is tumbling by 3.7% after Standard & Poor’s pared its rating on the country’s sovereign debt to B- from B.
The ratings agency is keeping the long- and short-term ratings on Greece on CreditWatch with negative implications. Greece’s B- rating is just one notch above CCC, a rating that implies vulnerability to nonpayment “and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation,” according to S&P, scenarios that Greece is unlikely to meet in the near-term.
“The downgrade reflects our view that the liquidity constraints weighing on Greece’s banks and its economy have narrowed the timeframe during which the new government can reach an agreement on a financing programme with its official creditors: EU member states, the EFSF, the ECB, and the IMF. Although the newly elected Greek government has been in power for less than two weeks, we believe its limited cash buffers and approaching debt redemptions to official preferred creditors constrain its negotiating flexibility,” said S&P in a statement.
Friday’s action in GREK caps a volatile week for the ETF. After posting one of its worst one-day performances on record in late January on some of the heaviest volume seen in GREK’s just over four years on the market, the ETF surged 11.7% Monday. That was followed by a Tuesday pop of 13.2% as global investors appeared to buy into the notion that Greece is likely to remain in the Eurozone. [PIIGS ETFs Try to Rally]
However, GREK plunged into the close Wednesday after the European Central Bank lifted a waiver requiring a minimum credit rating for Greek-issued debt, meaning lowly rated Greek debt cannot be used as collateral within the Eurozone.