By Anna Rascouet and Beth Mellor Dec. 8 (Bloomberg) -- Greek bonds tumbled, with the yield on the two-year note rising the most since November 2008, on mounting concern the nation’s deteriorating finances may prompt a debt downgrade. The decline sent the yield on the two-year security to the highest level since May. Standard & Poor’s put Greece’s A- rating, the lowest among the 16 nations in the euro region, on watch for a possible downgrade yesterday, signaling it may be lowered within two months. The premium investors demand to hold Greek 10-year government bonds over German bunds, Europe’s benchmark securities, reached the widest level since April 21. “The negative outlook for the rating was the trigger for the move,” said Marc Ostwald, a strategist in London at Monument Securities Ltd., a broker for banks and investors. “Everyone is getting very, very negative” on Greece, he said. The yield on the two-year Greek note jumped 45 basis points to 2.52 percent, the highest level since May 4, as of 1:08 p.m. in Athens. The yield on the 10-year security climbed 24 basis points to 5.38 percent, the most since March 12. Greece’s socialist government, elected in October, plans to cut its budget deficit to 9.1 percent of gross domestic product next year from 12.7 percent this year. The plans, including one- off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics,” given the prospects of high deficits, debt and sluggish economic growth, S&P said yesterday. European Union officials are increasing pressure on the Greek government to take lasting measures to reduce the deficit, the highest level this year in the 27-nation European Union. Greece is facing a “very difficult” situation and needs to take “courageous” decisions to counter the budget deficit, European Central Bank President Jean-Claude Trichet told the European Parliament in Brussels yesterday. The cost of protecting against losses on Greek government debt through credit-default swaps rose 12 basis points to 202.5 today, according to CMA DataVision prices. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net

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