Perhaps you recall back in August of 2011 when S&P’s credit rating agency downgraded US debt…no?? Well, if not, you weren’t alone. Markets shook it off, maybe because a) it didn’t make a lick of sense at the time, b) the credit raters hadn’t exactly distinguished themselves during the debt bubble.
Well today they revised their outlook from “negative” to “stable.” And again, I expect no one to notice.
In fact, here’s the trajectory of 10-year Treasury yields since the downgrade, wherein you see a conspicuous lack of reaction to the downgrade. I often poke at financial markets for not being as all-knowing as assumed, but in this case, I gotta give it up: they correctly ignored non-information.
Not sure if this is outside your purview, but would love to hear your opinion on credit rating reform. Does it really make sense to have private ratings firms competing to grade other private businesses and then getting paid by those very same businesses?
I’ve worried about precisely this set up in the past and was supportive of an amendment by Sen Franken during the Dodd/Frank financial reform debate that would have helped to address these conflicts of interest. It didn’t get anywhere. At the very least, you’d like a lot more competition in the field–I’m pretty sure the vast majority of securities are rated by S&P, Moody’s, and Fitches.
After the actual downgrade US Treasury rates went down.
After the announcement of the outlook upgrade, rate went up.
Sure is backwards to all the doom and gloomers predictions.