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FEATURE: Hard times ahead?
03 June 2011
The US has been put on negative watch by one of the major ratings agencies. Can the world's supposedly safest asset class really be in jeopardy?
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US Treasuries
S&P
The saving grace of the financial crisis was that sovereign debt yields
sank to historically low levels. Markets tolerated huge budget deficits as a
necessary evil to temporarily keep large economies such as the US afloat. The
question now is whether sustainable growth returns before growth-sapping
deficit reduction measures become necessary, as has been the case in peripheral
European countries.Standard & Poor's (S&P) became the first of
the big three ratings agencies to officially voice concern when it revised its
outlook to negative watch on 18 April. S&P's base case, assuming growth of
3%, is that the US deficit in 2013 will be 6% and net debt will have reached
84% (up from 33% in 2000). S&P is not just concerned that its deficit is
large - so are those of many other AAA-rated countries - but that policymakers
seem unable to get a long-term plan in place before 2013. Nikola Swan, primary
credit analyst, S&P says: "We believe there is at...
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