Sunday, 7 August 2011

Standard & Poor

The US politicians put together a last-minute agreement, but S&P has rightly downgraded their the US credit rating anyway - a rating of AAA means not just that you can pay your debts but also that you will pay your debts.

However, in the short to medium term I expect this downgrade to have little or no effect on US bond yields.  Why should it?  The arguments for selling US bonds apply more powerfully to US equities, and if you sell equities (as the market has been doing with some vigour) you have to put the money somewhere.

Incidentally, I think the share sell-off has got more to do with European government debt than the USA's.  Some European countries are not going to be able to pay.

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