The posturing and not so subtle hints by Standard and Poor’s came to a head Friday evening as the rating agency downgraded U.S. long term debt from AAA to AA+. The downgrade only applied to long term debt and the U.S. short term rating of A-1+ was affirmed. S&P left U.S. long-term debt on negative outlook saying that there is a one-in-three chance that the rating is cut again over the next two years.
This morning, markets are reacting to the move with the yield on the 10 year note falling from 2.55%, the close on Friday, to 2.35%, gold setting a new record high at $1,707 per ounce, and the U.S. stock markets deep in negative territory. The one piece of good news is the price of oil is down to $84 per barrel.
The main concern now is the market reaction to a downgrade of GSE and municipal debt which S&P will address today. It seems the Federal Open Market Committee (the Fed) will not be at a loss for discussion topics at tomorrow’s meeting.
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