Shane Oliver Economist and Head of Investment Strategy at AMP quoted prior to downgrade of US:
"A ratings downgrade would probably have less impact on US borrowing costs than feared. The experience of other countries downgraded from AAA to AA suggests just a 0.2% rise in long-term bond yields; forced selling of US bonds is likely to be limited as most investors can still hold AA-rated debt as it?s still investment grade; the uncertainty involved in the economic outlook would likely see continued safe-haven buying of bonds; and if US bond yields do back up too much it?s likely the US Federal Reserve (Fed) will start buying them again (via a third round of quantitative easing, i.e. QE3). Certainly, talk of a downgrade is not presently worrying bond investors as US 10-year bond yields have fallen to just 2.6% from 3.7% in February. While a ratings downgrade may not be a disaster for the US, the debt ceiling debate and talk of a downgrade has focused attention on America?s public debt problems and brought forward momentum for fi scal austerity at a time when the US economy is fragile. This in turn has adversely affected business and consumer confidence".
