As a frame of reference for what S&P did on the outlook for the US sovereign debt, back on May 21st 2009 S&P put the UK’s sovereign AAA debt outlook to negative from stable. On the day before, the 10 yr Gilt yield closed at 3.58% and rose to 4.02% in the month to follow but was back to the 3.55-3.65% range by mid Aug ’09 (vs 3.57% today). This occurred at the same time the Bank of England was in the midst of their quantitative easing program. On the day of the S&P move on the UK, the FTSE fell 120 pts but got that back in the two weeks that followed. It took almost a year but the UK government responded with a very austere budget. The key for us of course is what bells get rung in Wash, DC, what they do about it and where US interest rates go in response. Without this being a partisan comment at all, because both parties are fully responsible for our current debt plight, the initial comment from the Austan Goolsbee, the President’s Chairman of the Council of Economic Advisers, was not encouraging as rather than saying we will get down to business and cut our debts and deficits, he instead said he disagreed with what S&P did.
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