U.K. Stripped of AAA Rating by Moody’s Amid Outlook Weakness – Bloomberg 02-23-13

Salient to Investors:

Moody’s said the U.K.’s high and rising debt burden means deterioration in the government’s balance sheet is unlikely to be reversed before 2016, and while the U.K. has considerable structural economic strengths, expected slow growth of the global economy and the reduced speed of debt reduction in the U.K. led to the downgrade.

David Tinsley at BNP Paribas does not expect much market impact from the downgrade because it was widely expected – the U.K. has a similar gross debt to GDP ratio as France and the US who both lost their AAAs recently. Tinsley expects Fitch to downgrade the U.K. shortly after the March Budget, followed by S&P, and says , and says the U.K. needs to find growth to raise tax revenues.

Steven Englander at Citigroup said the US, France and Japan have not paid up because of downgrades and it is unlikely that the bond market will be where the U.K. feels the most pain.

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook in 2012. Investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P. The long-term average is 47 percent, based on more than 300 changes since 1974.

Charles Diebel at Lloyds Banking said that losing your AAA is historically a bond bullish event.

The European Commission said Britain’s debt as a percentage of GDP will rise to 98 percent in 2014 from 95.4 percent in 2013 and 90 percent in 2012.

Eric Lascelles at RBC Asset Mgmt said developed countries are being downgraded on a regular basis.

Read the full article at http://www.bloomberg.com/news/2013-02-23/u-k-stripped-of-top-rating-by-moody-s-amid-weak-growth-outlook.html

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