Monday, August 15, 2011
Monday, August 8, 2011
US LT Sovereign Rating Downgrade Impact
It is important to remember that US long-term rating is downgraded by S&P but still regard as an “Investment Grade” while two other CRA’s reaffirmed AAA rating.
After the lost of AAA rating, borrowing cost will increase for the US treasuries, which result in higher debt service cost and more burden on already high fiscal deficit.
Pressure will also mount on all those sovereign who have pegged their currencies with USD, including Hong Kong & Gulf countries (except Kuwait)
Does the investor have choices other than US Treasuries?
There is no doubt that US treasuries were and will remain the most liquid benchmark. There is a dearth of alternative AAA investments, as of now US treasuries stock are much bigger than the cumulative treasury stocks of those, considered to be the alternative to US treasuries. Even after adding all the outstanding treasury stocks of Germany, France & UK, its only 42% of US treasuries stock (excluding MBS)
US Treasuries (USD11, 150 bn) > Germany Treasuries (USD 1,720 bn) + France Treasuries (USD 1,700 bn) + UK Treasuries (USD 1,300 bn)
Saturday, August 6, 2011
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