LOS ANGELES, CA (Catholic Online) - Greece's previous rating of B to CCC from B reflects "our view that there is a significantly higher likelihood of one or more defaults," S&P said in a statement. "Risks for the implementation of Greece's EU/IMF borrowing program are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required."

Greece's government, which plans to sell $1.8 billion worth of 26-week Treasury bills, said that the downgrade overlooked "intense" talks between European officials to address the nation's financing needs.

"Greece will default -- it's a question of when, rather than if," Vincent Truglia, Managing Director at New York-based Granite Springs Asset Management LLP said. Truglia is the former head of the sovereign risk unit at Moody's. "It's a basic solvency issue rather than a liquidity issue. Only a debt write-down will do."

The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity was at 1,402 basis points yesterday, close to a record.

No other sovereign nation has ever been graded as low as CCC by S&P, a spokesman said by e-mail. Moody's cut its rating on Greece to Caa1 on June 1, leaving only Ecuador as a worse sovereign risk.

"The ratings agencies are now playing catch-up with the market," Gianluca Salford, a fixed-income strategist at JP Morgan in London said. "The market is pricing in a very high probability that there will be a credit event around Greece. The agencies are just catching up to the negativity that's already priced in by the market, not the other way around."

The downgrade comes as the European Central Bank and Germany battle over how to bail out Greece again and whether officials should push creditors to share some of the costs. ECB President Jean-Claude Trichet said yesterday that his advice to European governments is to "avoid what would be a compulsory concept" and "avoid whatever would trigger" a default.