After S&P downgrade, debt markets disagree?

Standard & Poor’s downgrade of US government debt from AAA to AA+ had many analysts expecting a rise in yields on treasuries. Yields rise when prices drop. By essentially saying that the credit was not as good as previously thought, the risk is higher and therefore an increase in compensation in the form of yield would be demanded by investors who would pay less (causing price to fall and yields to rise) for treasuries.

That didn’t happen on Monday. Yields dropped as investors looking for a safe haven for money pulled out of equity markets put them in US treasuries. Demand pushed prices up, and yields down. So perhaps AA+ is the new AAA after all?

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 5 comments
  • IncomePhan

    They don’t disagree. They just don’t have a choice.

  • The Wealthy Canadian

    If Obama says they’re AAA, then I guess they are :)

    It’s quite obvious that many investors are flocking to dividend-paying stocks for the yield.

    Nice post

  • Preet

    The yield on the S&P500 is higher than the yield on treasuries. If you can hold off getting shaken out of stocks if the volatility continues, better to get paid more while you wait. :)

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