1 min read

Downgrades: an observation

Since Britain’s sovereign debt rating was downgraded from AAA by Moody’s a couple of months ago, the UK’s cost of borrowing (as measured on its 10-year bonds) has fallen from 2.1% to just below 1.7%. That’s a 19.5% fall in borrowing costs. You can see it in the chart below (courtesy of Bloomberg).

UKdowngrade

Good – but not quite as good as the fall in borrowing costs enjoyed by the US when it first had its AAA stripped back in 2011. Its 10-year borrowing rate dropped from 2.56% to 1.89% – a fall of about a quarter.

USdowngrade

Yes, I know there’s a lot else going on here, but you can’t help but wonder: perhaps investors don’t merely ignore the ratings agencies, maybe they treat them as a contra-indicator.

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