Investors didn’t follow Standard & Poor’s guidance, by buying Treasury bonds while the rating agency downgraded U.S. credit rating. Since S & P revised the U.S. rating a step down, from “AAA” to “AA +”, 11 days ago, the return on Treasury securities with a term of ten years, considered the benchmark, fell to a minimum of 2.03%, from a peak of 3.77% year, and U.S. bonds are moving in August to the highest monthly increase since December 2008.
U.S. bond interest rates are lower now than in most countries with maximum ratings “AAA” from S & P and the Treasury has recently funded its debt at the lowest cost in history.
The decision of S & P, the largest ratings agency in the world, resulted in an increase in U.S. bond prices, making the U.S. market to increase its performance across the world’s bond indexes.
Moody’s Investors Service and Fitch Ratings, the other two major credit rating agencies have confirmed the U.S. rating at “AAA”.
“Market revised up the U.S. Treasury securities. These securities continue to represent the shelter for investors, at least temporarily, this is what I saw last week”, said Andrew Johnson, department director at Neuberger Berman Fixed Income from Chicago, which manages funds of 85 billion dollars.
At the time of downgrade announcement, S & P said that the U.S. government is “less stable, efficient and predictable”, even though it admitted that it overestimated by 2,000 billion the U.S. debt.
The rating agency has downgraded the U.S. rating, eight months after it improved China’s rating because of the stability of the communist government, and this has questioned the credibility of the agency.
S & P decisively contributed to the decrease of world stock market capitalization by about 6,100 billion dollars, between July 26 to August 12, but bond prices rose and yields fell.
Shoppers stood in line for the issuance of U.S. Treasury last week, which earned a record minimum of 2.13% for bonds worth 72 billion dollars, for 10 to 30 year terms. The result will be a saving of 647 million dollars in interest, until the maturity of the debt, according to Bloomberg data.
“The market tells us that S & P decision is incorrect. Treasury bonds are still seen as the safest securities”, said Edward Marrinan, head of credit strategy at RBS Securities in Stamford, Connecticut.