Investors in the U.S. government bond market could face losses of up to $100 billion if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill, the parent of Standard & Poor’s.
A ratings downgrade that results in higher bond yields and lower prices could also mean the U.S. Treasury paying $2.3-$3.75 billion a year more in interest on financing a $1,000 billion annual budget deficit.
“If Standard & Poor’s or any of the other major rating agencies downgrade the U.S., Treasuries would likely drop in value, possibly by as much as $100 billion,” said analysts at S&P Valuation and Risk Strategies, a research team separate from the agency.
Currently, Treasury yields do not reflect concern about the U.S. losing its top rating. The yield on 10-year Treasury notes fell to 2.85 percent on Friday, a low for the year. Investors are concerned about a weaker economy and financial contagion from the euro debt crisis. Yields on four-week Treasury bills have been driven below zero.
A ratings downgrade that results in higher bond yields and lower prices could also mean the U.S. Treasury paying $2.3-$3.75 billion a year more in interest on financing a $1,000 billion annual budget deficit.
“If Standard & Poor’s or any of the other major rating agencies downgrade the U.S., Treasuries would likely drop in value, possibly by as much as $100 billion,” said analysts at S&P Valuation and Risk Strategies, a research team separate from the agency.
Currently, Treasury yields do not reflect concern about the U.S. losing its top rating. The yield on 10-year Treasury notes fell to 2.85 percent on Friday, a low for the year. Investors are concerned about a weaker economy and financial contagion from the euro debt crisis. Yields on four-week Treasury bills have been driven below zero.
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