Treasuries returned 9.8 percent in 2011, the most since 2008 when including reinvested interest, Bank of America Merrill Lynch Indexes show, as yields overall have fallen 43 basis points to 0.96 percent since the S&P cut.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against those of six major trading partners, has climbed 6.7 percent since the cut to 79.55, above its average for the past five years of 78.96. The S&P 500 Index has rallied 24.5 percent including dividends.
Credit-default swaps tied to U.S. debt, which typically fall as investors’ perceptions of creditworthiness rise and increase as they deteriorate, have fallen to 41.2 basis points from 55.4 basis points on the day of S&P’s downgrade and a record 100 in February 2009, according to data provider CMA. The firm is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
Predicting the reaction to rating changes by S&P or Moody’s is little more than a toss up, with yields moving in the opposite direction than suggested 47 percent of the time, according to data compiled by Bloomberg in July. Yields were measured after a month relative to U.S. Treasury debt, the global benchmark.
The U.S. isn’t the only nation to see its bonds rally after a downgrade. France’s 1.08 trillion euros ($1.40 trillion) of debt maturing in a year or more gained 8 percent since it was cut by S&P to AA+ on Jan. 13, more than double the gains for the rest of the global government-bond market.
Ratings companies, which a congressional panel said helped ignite the financial crisis by inflating grades on securities backed by subprime mortgages, are no longer trusted by the world’s biggest investors, according to the former head of structured finance at S&P.
David Jacob, who was fired from S&P in December, said in a June interview that grading government bonds is outside ratings companies’ traditional areas of expertise because “you’re talking about politicians, you’re talking about legislators, you’re not talking about credit risk.”