Who do you trust? Rating agencies or the market?
Two leading credit-rating firms have cautioned the U.S. on its rating, expressing concern over a deteriorating fiscal situation that they say needs correction.
The warnings issued Thursday echoed prior statements by the companies, however, and financial markets largely ignored them. Treasury yields, which move in the opposite direction as prices, were lower in late-morning trade and the cost of insuring U.S. debt against the risk of default, already below that of Germany, the euro-zone benchmark, barely budged.
"My traders are shrugging it off as stuff we've heard before," said Tom Di Galoma, head of interest-rate trading at Guggenheim Partners in New York.
No question a down grade would have severe consequences. But I don't think the rating agencies are anywhere close to pulling the trigger, as evidenced by the market's reaction.
I always lean towards trusting folks with skin in the game. If the price of credit default swaps on Treasuries starts going up, then it'll be time to panic. For now, we can treat this episode as just a reminder that we need to get our house in order sooner rather than later.
