Markets show muted response to U.S. debt downgrade threat

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Financial markets in Asia were showing a muted reaction early Thursday to the possibility of a downgrade of America’s credit rating.

Treasury bond yields were up slightly, the dollar was lower and gold edged up to a new high. Stocks were down modestly in Tokyo.

Moody’s Investors Service on Wednesday put its Aaa rating on U.S. debt under review for a possible downgrade, making good on a threat it issued on June 2.

With Congress and the White House at impasse in negotiations to cut the federal budget and lift the Treasury’s $14.3-trillion debt ceiling, Moody’s cited “the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations.”


Treasury bond investors have been staring at the possibility of default for months, but seemingly refuse to believe it will come to that. Bond yields are near their lows for the year.

Moody’s announcement came after U.S. markets closed Wednesday. In Asia early Thursday the five-year T-note yield was at 1.45%, up from 1.44% in U.S. trading. The 30-year T-bond yield was at 4.20%, up from 4.17%.

The Treasury will sell $13 billion of new 30-year bonds on Thursday.

In currency trading the euro rose to $1.424 from $1.417 on Wednesday. The dollar fell to 78.59 yen from 78.98, nearing the post-war low of 76.25 reached in mid-March, when Japanese were pulling money home after the country’s devastating earthquake.

Gold, which closed at a record high of $1,585.20 an ounce in New York, added $1.20 to $1,586.40 in Asia.

The Nikkei-225 stock index was off 0.3% to 9,936. Equities were mixed in other Asian markets.

All in all, anyone hoping for a financial panic to force a budget deal between Congress and the White House will be disappointed with markets’ reactions so far.

-- Tom Petruno


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