The US sovereign downgrade by Standard & Poor’s came and went with little more than a blip. The debt ceiling was raised while the Super Committee takes some time to ponder how to get the US deficit down. But we might not witness the impact of either until November.
The non-event that was the downgrade of US debt to double-A was largely expected. Those that wanted out of government-sponsored debt got out back in 2008 and 2009. And syndicate officials say investor confidence in treasuries has not changed.
For agency debt, 20 basis points more at the short end than treasuries with an implicit guarantee is ensuring that demand continues. Furthermore, some 90% of money-market funds do not have stipulations that they hold triple-A securities and so have not been forced to sell.
For those that do require triple-A rated paper, funds have grandfathered in existing short-term paper and will wait for the 90-day roll-over period before reinvesting. That could have some impact in the middle of November, although officials are confident that demand for high-quality paper will fill the gap.
Of greater concern is what will happen to the muni market.