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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
|---|
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S&P National Bond Index
|
3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
|
0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
|
848.03 |
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S&P U.S. Preferred Stock Index (CAD)
|
636.26 |
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S&P U.S. Preferred Stock Index (TR)
|
1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
|---|
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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The end of "risk free" |
The Economist - August 1, 2011 - by P.B. | LONDON
AT THE risk of celebrating too early, it looks like there will be a $2.4 trillion debt-ceiling deal, with initial spending cuts of around $900 billion. This addresses the immediate risk of a default—even if negotiations hit a last-minute hitch, there are short-term backup options—but doesn’t meaningfully change the country's unsustainable fiscal trajectory.
The S&P has already warned that America faces a credit downgrade, and many observers now think that it is just a matter of time. The whole debt-ceiling farrago has demonstrated just how difficult it will be to achieve significant medium-term consolidation—incorporating both entitlement cuts and tax increases—given America’s truly dysfunctional political system.
But, like my colleague, I doubt that a credit downgrade would be disastrous. Clearly, dropping to double-A would make it more expensive for America to service its debts. The S&P has estimated that a downgrade would lead to losses of $50-100 billion for Treasury holders and increased interest costs of $2.3-3.8 billion for each trillion in US government debt. It would also make bond yields more brittle; given America’s relatively short-dated sovereign debts, this could leave the country particularly exposed to adverse shocks and panics.
The knock-on effects would also increase costs for municipal bonds and agency securities tied to America’s sovereign rating. Private and quasi-private "too big to fail" companies (major banks, Fannie Mae/Freddie Mac) could be hit by higher operating costs as a lower credit rating would raise questions about the viability of their federal backstops. And, more systematically, a downgrade would increase the default risk premium baked into various forms of financial analysis—typically pegged to the supposedly risk-free 10-year Treasury rate—increasing the cost of capital and causing headaches for corporate finance types everywhere.
On the other hand, a well-signaled ratings drop need not cause an economic crisis. The expected increase in sovereign-debt costs is manageable, and a downgrade would be unlikely to cause a flight from Treasuries; double-A bonds still carry zero risk weight under Basel I/II/III, and as long as America retains is AAA short-term rating, money-market funds will still be able to hold short-term bonds.
For the complete article.
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| Stuff to look at |
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S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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