On Friday after the US market closed, S&P downgraded the US credit rating from AAA to AA+. They also kept the outlook as “negative”, which puts it inline for further downgrades in the future.
Actually, the downgrade has been been hinted at for some time, but the actual downgrade might herald in a new financial era.
Warren Buffett argues that the downgrade was a mistake, and as much as I am a fan of him, I have to differ from his view this time round.
US treasuries have rallied of late because of the increased market volatility. But with this downgrade, will institutional funds be forced to sell off their US treasuries? It will be interesting to see the outcome of this tug of war and how the equity markets will react.