A US Downgrade Might Be Unavoidable - Does It Matter?

Updated: August 2, 2011

The US debt ceiling drama concluded today as President Barack Obama signed the compromise bill that resulted from weeks of frantic, last-minute negotiations between the White House and Republican and Democratic Congressional leaders.

虽然已经避免了技术违约，但总统被誉为平衡美国预算的第一步，但政府仍未制造的大多数最艰巨的长期决定。有了这么多的问题，对美国债务降级的恐惧远未休息。

The impact of a downgrade on markets is a matter of some debate. The interest rate research team at Barclay's Capital laid out a concise argument for a downgrade last Friday in their weekly global rate strategy report, arguing that the amount of savings that any adopted plan could claim was irrelevant, and that the debt-to-GDP ratio was the critical factor from a long-term credit risk standpoint.

巴克莱的估计，在储蓄中需要超过4万亿美元，以便在2021年以75％到80％的GDP稳定在基线假设的75％至80％。正如他们所指出的那样，雄心勃勃的套餐在长远来看可能几乎没有。“关键是要相对迅速稳定债务/国内生产总值比率 - 我们等待的时间越长，即将削减的削减就越多，”他们指出。When factoring in the many unrealistic assumptions about future growth and spending made in Democrat and Republican plans, as well as the ‘double whammy’ that weaker GDP growth delivers to the debt ratio, Barclay's conclusion is that any plan likely to be adopted in the coming days will fail to tackle the real problems, meaning that the risk of downgrade remains significant regardless of any debt ceiling compromise. They note that this is completely avoidable and that if the US does lose its AAA standing that it will have been "purely self inflicted."

Jessica Hoversen, a strategist at MF Global, pointed out last Friday that while a downgrade now is much more likely than it was several months ago, the timing of any change will depend on more than just the math. "The ratings agencies have already taken tremendous criticism over the timing of recent downgrades of troubled European sovereigns due to the perception that they kept asking for austerity measures which were adopted, but then downgraded them anyway," she states. Hoversen argues that the ratings agencies are still repairing their credibility in the aftermath of the crisis, and that they will seek to avoid the political and investor backlash of lowering the US from AAA until after they have fully exhausted their ability to issue warnings.

Much of the strategic research published in recent days has focused on the thornier question of when, rather than if, a downgrade occurs. In a note put out over the weekend, Bob Savage at Track Research pointed out that the risk of the US losing its AAA status was already largely priced into the bond markets. "The money market cash hoard in response to the fear of default may be the only story of consequence to watch out for next week. In the rest is the noise of a plane whistling in the dark," he said.

A quick scan of the investment mandates of public investors in the US reveals that almost all contemplate US government and agency debt separately from ratings considerations. In other words, the definitions of what state and municipal pension funds can and cannot own in their portfolio list US treasuries and also the bonds issued by Fannie Mae and other government sponsored enterprises regardless of the credit rating assigned to them.

Meanwhile, Barclay's notes that many institutional investors and mutual funds actually weight their credit exposure in manner that will paradoxically require them to purchase more treasuries and sell lower-rated bonds as they rebalance portfolios that require a constant minimum average credit rating by either target or mandate. Simply put, there are not enough AAA bonds besides US treasuries in circulation globally for it to be possible for these investors to substitute other credits so they must sell the lower-rated paper and buy what they can.

Internationally, the unchallenged reserve status of the dollar makes a sudden stampede away from US treasuries unlikely according to most market strategists and academics. As Savage notes, "With fully 53% of the world’s AAA bonds ‘Made in America,’ there isn’t much else ground upon which to land."

一个地方，影响肯定会感受到衍生市场，因为所有主要经销商同时都会通过所有主要经销商重新校验风险和抵押水平。这产生了显着的近期波动性的可能性。随着银行和其他经销商实施的风险管理变革在雷曼破产后，这些市场的突然风暴似乎不太可能导致严重的全身损害。上周遇到CME公告的集体打哈欠将抵制抵押理发，旨在衍生品市场准备在步幅下降。

Does this mean that when the dust settles in a hypothetical post-downgrade universe that the impact will be negligible? That the ground that the markets stand on will merely be an inch lower – with all relative risk factors adjusted down in lockstep accordingly?

One thing that almost all are in agreement on is that most investors will continue to hold US debt regardless of a downgrade, if only for the lack of alternatives.