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The Moodys Usa Downgrade

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by Felix Salmon
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Feb 12 2009 9:06pm EDT

The Moody's USA Downgrade

Can the yield on US Treasuries be considered the "risk free rate of return" if there are other securities which are lower-risk than US Treasuries?

Moody's now admits two things: firstly that triple-A doesn't mean risk-free (thanks, guys, I think we'd worked that out by now), and secondly -- more interestingly -- that the US is not the safest triple-A credit.

There are now three levels of triple-A, when it comes to sovereign bonds. The weakest -- which have been classed as "vulnerable" to a downgrade -- are Spain and Ireland. The strongest -- which have been classed as "resistant" to a downgrade -- are Germany, France, Switzerland, Austria, Australia, Canada, Denmark, Finland, Luxembourg, Netherlands, Norway, Sweden, Singapore, and New Zealand. And in the middle -- stronger than the "vulnerable" countries but weaker than the "resistant" countries -- are the two "resilient" countries: the UK and the US.

Which means that Moody's now considers the USA to be a weaker credit than Finland or Singapore: a handy datapoint for anybody who thinks the US empire is crumbling.

(HT: Alea)

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