S+P Downgrade of US debt

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sgip

sgip

Well-known member
Buying a home, or talked to someone about a refinance? Seen the news lately?

First let's assume that S+P won't be the only ratings agency to downgrade. If that's the world we're about to live in, who knows what will happen with mortgage rates come Monday. 

To succinctly summarize our present situation as it relates to mortgages: Lock 'em if you got 'em.  This might be nothing or it could be the start of everything. A prudent rate lock in the face of uncertainty is warranted. If rates do nothing, then you're locked in. If rates go down, you could re-price / re-lock. If rates go up, you're protected.

Boy, it's going to be an interesting weekend up until when Japan and China open.

My .02c

 
Except this time, the agencies have it right.

First China downgrades us, now we can't help but do it to ourselves.

Cannibal Anarchy! Irvine is different! Real Estate only goes up! It's never been a better time to buy!
 
Japanese debt also got downgraded and their bond yields continued to go lower.  The US treasury market is the largest and most liquid market and made up about 60% of all AAA rated securities in the world. 
 
Tough to use the Japan analogy.

The Japanese sell most of their debt to their citizens and businesses. The USA must market their paper around the world.  Also, some States, pension funds, and insurance companies aren't able to keep any debt lower than AAA. This likely means either a coming willful ignoring of that issue, or selling. Don't know if I'd want to bet that coming out well.

My .02c

Soylent Green Is People. 
 
I think this will be a non-event.  A downgrade to AA+while meaningful in that a rating agency did drop the US from AAA status shouldn't have an impact on funds as (according to a recent podcast from Planet Monday in which they discussed sovereign ratings as it related to the S&P) very few prescribe that the debt in the portfolio needs to be AAA. 
 
i help write corporate investment policy statements.  Haven't PERSONALLY (not saying its not out there) a lot of "must have AAA".  Guideline is that if you are structuring one for a committee, be flexible (why paint yourself into a corner).  If you are structuring one for a mandate, you can be more strict, as long as you balance your provisions and overall return objectives. 

Regardless, I think market forces will negate any real effect of downgrade.  Example...  downgrade causes yields to spike and 10yr treasury is at, for hsits and giggles, 6%.  Do you know how much money will pour into treasuries?  You might even get the reverses effect.  Many pension and institutional funds have been getting killed because of the lack of yield on treasuries (especially plans with a lower duration), a spike in yield might cause a sigh of relief...
 
One downgrade could be a non-event. Two or three begins the Butterfly Effect. Although the UST is a large, almost unconquerable market, get a few bond vigilantes out there as they have in the Eurozone and who knows where this will go. Bill Gross says he's out of Treasuries what, about two months ago, and we did see mortgage rates suffer some.  Japan has said it's not going to impact their buying decisions. China is saying the opposite (but what they're doing is another story...) so to repeat - who knows what will happen Monday.  It doesn't appear to be as big of a deal as first thought since the markets are closed and the weekend is going to give fund managers and sovereigns enough time to guess what to do next.

** Check that... Looks like everyone over in Europe is running around with their hair on fire what with their own bailout problems of Italy. That may be a pretty big diversion to the US downgrade. If things go awry overseas, money will flow to UST's even if they're rated AA+ ***

Interesting times we live in.

My .02c
 
I'll be working this whole weekend. Pretty shitty thing to find out at 7pm on a Friday night as you are walking out the door.

S&P = Un-American
 
"Bill Gross says he's out of Treasuries what, about two months ago, and we did see mortgage rates suffer some. "

Gross speak with forked tongue...

http://www.cnbc.com/id/43733676/PIMCO_s_Gross_Raises_US_Treasurys_in_Flagship_Fund

PIMCO's Gross Raises US Treasurys in Flagship Fund

Bill Gross, the manager of the world's largest bond fund, has soured further on the U.S economic outlook and has jacked up buying of U.S. Treasurys in June, according to PIMCO's website on Tuesday.
 
Total Return Fund held 8.0 percent in U.S. Treasurys and Treasury-related securities as of the end

People love to sensationalize.
 
Well, when your best alternatives are France, Germany, Japan or Italy, I guess the U.S isn't that bad if you're an investor.

I'm still stocking up on ammo, water, and potatoes just in case.
 
IndieDev said:
Well, when your best alternatives are France, Germany, Japan or Italy, I guess the U.S isn't that bad if you're an investor.

I'm still stocking up on ammo, water, and potatoes just in case.
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The US might be the best of the worst.  ???
 
Yeah... everything I'm reading says they should stay low... but PS9 tracks them pretty well so I'm wondering where he saw them jump.
 
irvinehomeowner said:
Yeah... everything I'm reading says they should stay low... but PS9 tracks them pretty well so I'm wondering where he saw them jump.
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His post was on Saturday and interest rates don't move on the weekend.  I'm getting a quote for one of my buyers and will post it up shortly.
 
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