As I’m sure you have heard, Moody’s downgraded US debt last weekend.
The stock market panic that ensued lasted for, oh, about an hour of trading.
Why did this already get shrugged off? It’s a classic empty-calorie headline. The practical impact of the downgrade to top holders of Treasuries—banks and pension funds—is nil.
Treasuries are still classified as top-grade collateral, which means banks can continue to leverage these securities. T-bills are just as good as cash for bank reserves, as they were before the downgrade. No need to scramble for new collateral.
And Treasuries still have investment-grade status, which means pension funds don’t have to make any moves.… Read more
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