Fitch downgrades California’s general obligation debt

CHICAGO, June 25 (Reuters) – Fitch Ratings on Thursday downgraded the rating on California’s general obligation debt and said it may lower the rating again, citing the state’s continued fiscal and economic stress.

The agency cut the state’s rating by one notch to A-minus, placing it four notches above speculative, or “junk” status, and making it the lowest rating of any U.S. state.

Read moreFitch downgrades California’s general obligation debt

California’s credit rating may be cut several levels: Moody’s

June 19 (Bloomberg) — California’s credit rating, already the lowest among U.S. states, may be cut several levels by Moody’s Investors Service as government leaders seek ways to eliminate a $24 billion budget deficit.

The move would affect $72 billion of debt, Moody’s said in a statement today. California’s full faith and credit pledge is rated A2 by Moody’s, five steps above high-yield, high-risk status, or junk.

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A downgrade may increase the state’s borrowing cost and raise the yield paid to investors on its bonds. Standard & Poor’s put California on watch for a possible reduction earlier this week, and Fitch Ratings did the same thing May 29. The rating companies cited the most-populous state’s deficit — amounting to more than 20 percent of the general fund — and lawmakers’ inability to agree on how to close the gap.

“If the Legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July,” Moody’s said in a report today. “Lack of action could result in a multi-notch downgrade.”

Read moreCalifornia’s credit rating may be cut several levels: Moody’s

U.S. likely to lose AAA rating

But, but … S&P Ratings: Why the US Government Is Still Rated AAA (BusinessWeek)

If you are still trusting Standard & Poor’s for one moment you are doomed and deserve to lose a lot more of your money.

Of course I agree with Robert Prechter:
The economy “is obviously heading toward a depression.”

“The banking sector is in severe trouble,” as more loans turn bad, he said.

“It’s the next leg down (in stocks) that will make it clear that these things (that the Fed has avoided disaster and that the economy has hit bottom) are not true,” Prechter said.



NEW YORK (Reuters) – Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.

Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.

Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor’s in May lowered its outlook on Britain, threatening the UK’s top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.

Read moreU.S. likely to lose AAA rating

US Treasury bloodbath soaks top fund managers

“If I were clairvoyant and knew we were going to have a sell-off of this magnitude, I would’ve been all in cash ….”

I have predicted this scenario many, many months ago and I have posted as much important information as I could find on the bond bubble. You do not have to be clairvoyant to know this.

Formerly safe bonds are increasingly a risky investment (Chicago Tribune):
“The seemingly safest of bonds look like they’ve been transformed from security blankets into bombs.”



NEW YORK (Reuters) – Investors have been blindsided by one financial catastrophe after another over the last 18 months, but throughout the tumult, the government bond market has been their friend.

Until now.

A brutal drop in long-dated Treasury prices has caught even the best money managers off guard — in some cases wiping out as much as 60 percent of the gains they booked in last year’s huge rally in U.S. Treasuries.

The Vanguard Group, Fidelity Investments, T. Rowe Price and Hoisington Investment Management have seen their government funds down anywhere between 10 percent and 30 percent, as record amounts of debt flood the market to pay for the swelling budget deficit.

What’s stunning about the portfolio declines is the swift plunge in Treasury prices within a short period of time despite the Federal Reserve’s buyback purchases intended to hold down interest rates. Benchmark 10-year Treasury yields have surged to levels not seen in more than six months, resulting in meaningful losses for many portfolios.

The 10-year T-note and 30-year Treasury bond are down 8.58 percent and 24 percent, respectively, in terms of price for the year to date.

“If I were clairvoyant and knew we were going to have a sell-off of this magnitude, I would’ve been all in cash, but I’m not,” said Van Hoisington, whose flagship Wasatch-Hoisington U.S. Treasury Fund is down more than 20 percent.

Read moreUS Treasury bloodbath soaks top fund managers

Biggest Holders Of Gilts Rather Sell Than Buy British Government Bonds: Survey

Standard & Poor’s has cut the outlook on Britain’s AAA credit rating to “negative”

gordon-brown
Gordon Brown, U.K. prime minister, leaves number 10 Downing Street to give money to a charitable cause, in London, U.K., on Tuesday, May 5, 2009. Photographer: Chris Ratcliffe/Bloomberg News

June 1 (Bloomberg) — U.K. debt is losing its allure for the biggest owners of gilts as the nation’s worst recession since World War II batters the government’s finances, according to a Bloomberg survey.

Eight of 10 funds, which oversee a combined $2.9 trillion, said they are either more likely to sell than buy British government bonds in the next three months or have no plans to purchase them, the survey conducted last week showed. Two said they were more inclined to buy than sell the securities.

Prime Minister Gordon Brown’s government aims to sell a record 220 billion pounds ($355 billion) of debt in the fiscal year through March 2010 to finance bank bailouts and measures designed to drag Europe’s second-largest economy out of the recession. Standard & Poor’s cut the outlook on Britain’s AAA credit rating to “negative” from “stable” on May 21, citing the country’s growing debt burden.

The U.K. is “spending heavily to rescue the banking system,” said Yuuki Sakurai, general manager of finance and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which oversees $54 billion. “The rating should be lowered.” Fukoku, one of the money managers surveyed, has no plans to buy gilts this year, he said.

Read moreBiggest Holders Of Gilts Rather Sell Than Buy British Government Bonds: Survey

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Bloomberg’s Mark Gilbert

May 21 (Bloomberg) — The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.

While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”

Several policy missteps suggest that investors should stop trusting — and lending to — the U.S. government. These include the state’s pressure on Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets.

Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.

“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”

Read moreDollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Bloomberg’s Mark Gilbert

US Will Eventually Lose Its AAA Credit Rating: Bill Gross

Geithner Pledges to Cut Deficit Amid Rating Concern

May 21 (Bloomberg) — Treasury Secretary Timothy Geithner said the Obama administration is committed to reducing the federal budget deficit after concerns rose that the U.S. debt rating may eventually be threatened with a downgrade.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television. He added that the target is reducing the gap to 3 percent of gross domestic product or smaller, from a projected 12.9 percent this year.

The dollar, Treasuries and American stocks slumped today on concern about the U.S. government’s debt rating. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

Benchmark 10-year Treasury yields jumped 17 basis points to 3.37 percent at 4:53 p.m. in New York. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33, and the dollar tumbled 0.8 percent to $1.3890 per euro.

Gross’s Warning

Gross said in an interview today on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” financial markets are “beginning to anticipate the possibility.”

Britain saw its own AAA rating endangered earlier today when Standard & Poor’s lowered its outlook on the nation’s grade to “negative” from “stable,” citing a debt level approaching 100 percent of U.K. GDP.

It’s “critically important” to bring down the American deficit, Geithner said.

Read moreUS Will Eventually Lose Its AAA Credit Rating: Bill Gross

Borrowing puts UK’s AAA rating in danger after Budget 2009

The prospect of the UK losing its AAA sovereign credit rating, resulting in higher interest rates for companies and households, moved a step closer after ratings agencies voiced fears about the UK’s vast public debt burden.


The Chancellor revealed in the Budget that the national debt will reach £1.4 trillion over the next five years Photo: EPA

Moody’s and Standard & Poor’s are reviewing the UK’s rating in light of the Chancellor’s revelation in the Budget that national debt will reach £1.4 trillion over the next five years. Spain, Ireland, Greece and Portugal have already been downgraded.

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Arnaud Mares, lead analyst at Moody’s for the UK, said: “Treasury projections that public sector net borrowing will remain above 5pc of GDP five years from now… are a cause for concern. This suggests that fiscal policy will have to be tightened much further than currently envisaged. The alternative would be that the Government chooses to live with a permanently higher debt burden which would likely have rating implications over time.”

A Standard & Poor’s spokesman said: “We are looking at the details of the Budget and have no comment to make at this stage.”

Sources in the bond trading market claimed credit agencies were already stress-testing the UK again for a possible downgrade. “You have to assume the risk of a ratings downgrade has increased after this Budget. It is certainly much more likely than we thought a few months ago,” said John Wraith, head of rates strategy at RBC.

Last November, Frank Gill, S&P’s director of European sovereign ratings, said public debt above 60pc of GDP could undermine an AAA rating. At its peak in 2013, the Government is forecasting debt at 79pc of GDP.

Read moreBorrowing puts UK’s AAA rating in danger after Budget 2009

Britain’s AAA credit rating threatened by scale of bank bail-out

Britain could be stripped of its prized AAA credit rating as a result of the Government’s latest bank bail-out, potentially jeopardising any economic recovery, according to rating agency Standard & Poor’s.

S&P only last month confirmed its “stable outlook” for the country’s sovereign debt but may now be forced to review the top-notch rating.

The change has been prompted by the Government’s asset protection scheme – insurance for toxic debt – which will leave the taxpayer exposed to losses on billions of pounds of bad loans made by the banks.

A downgrade would be calamitous for the country, which is on course to borrow an extra £500bn over five years, taking the national debt above £1 trillion for the first time. Should the UK lose its AAA rating or even be put on “negative watch”, the country’s interest bill would soar – putting further strain on the economy.

S&P indicated it might have to revisit the rating in evidence before the Treasury Select Committee last month. Under questioning, Barry Hancock, head of European corporate ratings, said S&P had confirmed the UK’s status on the assumption that “up to approximately 20pc of GDP in the form of bank assets could be problematic in the future”.

With annual economic output running at £1,400bn, 20pc would equate to £280bn. However, it has since emerged that the Treasury is preparing to ring-fence about £400bn of “toxic” bank debt – or 29pc of GDP – to draw a line under the financial crisis. Royal Bank of Scotland is said to want to use the scheme for £200bn alone.

Related article: RBS Said to Boost Bonuses by Up to $850 Million (Bloomberg)

A ratings downgrade or a shift to “negative watch” could be devastating for the Government’s planned economic stimulus package. As recently as last November, Frank Gill, S&P’s director of European sovereign ratings, raised concerns about the Government’s spending plans, warning that net debt above 60pc of GDP could undermine the AAA rating. Economists have forecast debt to reach 70pc of GDP by 2011.

Read moreBritain’s AAA credit rating threatened by scale of bank bail-out