Moody’s Investors Service lowered 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies as the country adopts austerity measures to qualify for European aid, leaving the notes under review for further downgrades.

The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said today in a statement.

The securities, which are part of 23 transactions, included 10.7 billion euro of notes backed by residential mortgages, 3.9 billion euro of collateralized loan obligations, and an additional 7.2 billion euro of other asset-backed debt, according to the statement. The bonds appear less creditworthy considering “Greece’s austerity package and the resulting impact on the Greek economy and collateral performance,” Moody’s said.

Ratings reductions typically boost the capital needs of bondholders such as banks and insurers and force some investors to sell the debt.

Greece’s economy contracted in the first quarter as the government cut spending and raised taxes in a bid to trim the European Union’s second-biggest budget gap, the Athens-based Hellenic Statistical Authority said today. Moody’s said May 10 it may cut the nation’s A3 grade to junk, citing the country’s “dismal” economic prospects.

Prime Minister George Papandreou, amid soaring borrowing costs, this month promised further wage cuts and tax increases on alcohol, fuel and tobacco in return for emergency loans from the International Monetary Fund and the European Union to stave off default.

(Source: Bloomberg News)