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Tuesday, June 11, 2013

'S&P Revises Up Its Outlook for US Debt: Markets Yawn'

Via Jared Bernstein:

S&P Revises Up Its Outlook for US Debt: Markets Yawn, by Jared Bernstein: Perhaps you recall back in August of 2011 when S&P’s credit rating agency downgraded US debt…no?? ... Markets shook it off, maybe because a) it didn’t make a lick of sense at the time, b) the credit raters hadn’t exactly distinguished themselves during the debt bubble.
Well today they revised their outlook from “negative” to “stable.” And again, I expect no one to notice.
In fact, here’s the trajectory of 10-year Treasury yields since the downgrade, wherein you see a conspicuous lack of reaction to the downgrade.  I often poke at financial markets for not being as all-knowing as assumed, but in this case, I gotta give it up: they correctly ignored non-information.

treas_10

Ratings agencies are supposed to solve an asymmetric information problem -- buyers are not as well informed about assets as sellers -- but if nobody trusts them (because the often add noise rather than clarity), what use are they?

    Posted by on Tuesday, June 11, 2013 at 12:57 PM in Economics, Financial System, Market Failure | Permalink  Comments (8)


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