S&P and other credit rating agencies haven’t had anything positive to say about sovereign debt recently no matter what country they analyze.
The latest is that S&P said that its outlook on the UK’s “AAA” rating remains negative. According to MarketWatch S&P voiced ‘concerns the general government debt burden could reach a level incompatible with the (AAA) rating unless a “strong fiscal consolidation plan” is implemented.’
Ratings agencies have been loudly whispering similar doubts about US debt, deficits, and the apparent refusal of Congress and the Administration to address the federal spending problem.
One large problem with the S&P reveiew of the largest developed nations is that the debt of two of three could be downgraded nearly simultaneously which would leave large bond investors like Pimco and even the Chinese government to wonder where they will put their money. It almost goes without saying that sovereign interest rates would then have to rise to create demand for their paper. It is scenario that is played out over and over again in the media and probably among the “quants” at fixed income funds.
The S&P statement about the UK is not new, but the pace of the drum beat is quickening.
Douglas A. McIntyre
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