Remember how nobody cares if a country’s credit rating gets cut? Well, nobody cares if a country’s credit rating gets cut. Still.
Reporting for Bloomberg, John Detrixhe and Matt Robinson write:
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974. This year, investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P.
Of course, that’s not particularly surprising. As we wrote last time Bloomberg published a similar report, in June:
One of the strengths of markets is that they are very good at pricing in future events. When an outlook changes, a downgrade is likely to follow, and so a lot of the expected spike in yields happens before the actual downgrade.
And all of that doesn’t negate the large political implications of a downgrade – even while the rating agencies say otherwise:
U.K. Prime Minister David Cameron raised taxes and reduced outlays in 2010 to save its AAA rating, freezing pay for police, teachers, nurses and doctors, and capping welfare payments. S&P lowered its outlook on the country to negative from stable Dec. 13, citing the weak economy.
“Deciding on policy choices is the domain of governments and their advisors,” S&P said June 22 in a report. “We have not taken sides in the growth vs. austerity debate.”
But it does mean that if the government gives any reason for “safeguarding the UK’s hard-won triple-A rating” other than “David Cameron would find re-election difficult”, they’re stretching the truth somewhat.
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