While the S&P credit downgrade of Japan shouldn’t be much of a surprise, it does highlight what many countries in the developed world face, too much debt and not enough growth. Japan’s new S&P rating is one notch below Fitch and Moody’s and is now in line with China and Taiwan. Japanese 5 yr CDS is rising 5 bps to 84, just a few bps from the highest since July ’10. S&P said “the downgrade reflects our appraisal that Japan’s gov’t debt ratios, already among the highest for rated sovereigns, will continue to rise further than we envisaged before the global economic recession hit the country.” Yields are moving higher also in Europe and the US. German 10 yr bund yield is at the highest since Feb ’10 and the US 30 yr yield is at the highest since Apr ’10 (also after CBO $1.5T budget deficit est yesterday and pushback against FOMC dovishness). US 5 yr CDS is up to 51 bps, the highest since Feb ’10.
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