S&P Affirms U.S. Short-Term Debt Ratings Keeping Money Market Funds Safe - For Now

Treasuries Little Changed In Monday Trading - Marketwatch

Bloomberg

The decision by Standard & Poor’s to affirm the U.S.’s short-term rating at the top A-1+ level even as it cut the long-term grade from AAA may help to stabilize money markets, according to strategists and economists.

The move means money market funds won’t be forced to sell Treasuries, said Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG. The “impact” on money funds “appears to be limited,” Philip Marey, the senior U.S. strategist at Rabobank Groep in Utrecht, Netherlands, wrote in a report to clients.

While S&P has warned since mid-July that a downgrade was likely, measures of distress in short-term funding markets have declined since then, signaling that traders expect little disruption. Two-year interest-rate swap spreads are trading at about one-third of the levels reached in May 2010 as the extent of Greece’s fiscal troubles came to light and one quarter of that in the weeks before Lehman Brothers Holdings Inc. collapsed in September 2008.

“The long-term downgrade shows that this is much more of a symbolic downgrade, and a warning that the U.S. needs to get its house in order, but by leaving the short-term rating unchanged, that is an important message because of the money-market implications,” said George Goncalves, head of interest rate strategy at Nomura Holdings Inc., one of 20 primary dealers that trade directly with the Federal Reserve.

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