A debt downgrade? I really don’t know what would follow

While us pontificators, strategists, market players, and crystal ball readers can give our 2 cents on what will happen next with the politics of DC and what will follow, the truth is, we really have no precedent to know. While I think the odds are close to zero that the debt ceiling doesn’t get raised with a spending cut plan of some sort, I can’t say with any confidence, how the markets will respond to a downgrade of the US credit rating, the credit rating of the largest economy in the world with its currency as the world’s biggest medium of exchange and its level of interest rates being considered the risk free rate. But I digress because its now exhausting to talk about. Italian and Spanish debt are trading poorly again with yields approaching the recent highs as are CDS and its dragging the euro lower. Italy sold debt with differing maturities, the 3 yr in particular priced at a yield 110 bps above one sold last month. Euro zone Economic Confidence in July fell to the lowest since Aug and Germany wasn’t immune as confidence there dropped to the lowest since Oct. German unemployment did fall in July but a touch less than expected.

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