Stripped

It’s been five years since the United States was stripped of its AAA credit rating by Standard and Poors.  Reports of the downgrade were filled with an array of worst case scenarios.

There was worry that this would push up borrowing costs.  The 10-year was at 2.33% in 2011.  It is 1.56% today.

There was worry that foreign debt buyers would sell US debt en mass.  Instead, we’ve seen a flight to safety as the world continues to snap up US Treasury securities.  At 1.5%-ish, our 10-year is one of the highest yielding government securities as Germany, Japan, and Switzerland flirt with negative rates.

The ten year Treasury is a financial standard, often used as the basis for a hypothetical risk-free rate in financial models.  Downgrading the foundation of these models was a very big deal.  However, the S&P 500 is up over 100% since the downgrade, including dividends.  Think about that the next time the investing world is supposed to end.  Is the crisis du jour as big of a deal as the US getting downgraded?  Probably not, but CNBC can’t just re-run episodes of Shark Tank all day so they act excited about Apple earnings and employment reports.

Photo by pbump