“S&P is a Ratings Agency! Why Won’t Anyone Listen to It?”

by Pejman Yousefzadeh on August 8, 2011

Today was a bad day as far as market activity goes. A bad day was expected, though perhaps people were hoping that the damage would be more limited than it was.

But it is worth noting that even as stocks were being sold off, and even as S&P was downgrading anything and everything related to U.S. Treasuries, market players had two safe havens to go to.

One was gold. The other was–wait for it!–U.S. Treasuries.

We have some serious fiscal and economic problems. We need to address them, and soon. But it remains worth noting that while our national economic leadership deserves criticism, the methodology employed by S&P to institute a downgrade of American credit was deeply flawed. Maybe that is the reason why market players–for the moment, at least–disregarded the downgrade and bought Treasury bonds. Maybe the purchase also had to do with the possibility that the market has long anticipated a downgrade, and that when the downgrade came, it was no surprise (though that theory would not probably explain why Treasuries remain as coveted as they were today). Maybe the market will turn against Treasuries if/when Moody’s and Fitch follow S&P’s lead.

But for now, it is clear that S&P is the anti-E.F. Hutton. When it talks, no one listens. And if you want Treasuries to remain a coveted asset and you want interest rates to remain low, that’s a good thing.

  • http://twitter.com/MichaelWFisk Michael Fisk

    Similarly to the graph you posted yesterday, I wonder if anybody would try to correlate countries’ long-term bond yields by their ratings?  Japan’s 30-year bond yields are about half what ours are, and they’re an A+, while Australia’s 1-year note has a higher return than our 30-year, and they’re a AAA…

    • Pejman Yousefzadeh

      Offhand, I am not sure if they have. It’s an interesting question.

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