# UK downgraded, loses AAA rating



## james4beach (Nov 15, 2012)

Tonight, Moody's downgraded the United Kingdom from AAA to AA1
http://www.guardian.co.uk/business/2013/feb/22/uk-credit-rating-downgraded-moodys

The UK is a major government bond issuer ("gilts") so many institutions worldwide are affected. Also, the UK has the largest financial hub in the world after the USA. Since the government backstops banks, a downgrade of the UK means a simultaneous downgrade for the entire London financial sector and international banks such as Barclays.

Obviously, some people are going to doubt the rating, but many analysts including myself have observed that the UK has one of the worst fiscal/economic situations among developed countries. I'm surprised it wasn't downgraded sooner. For instance the UK is in just as bad shape as France, and I was a bit confused when France was downgraded but the UK was left untouched.


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## gibor365 (Apr 1, 2011)

Doesn't it mean that big institutions who needs AAA bonds will buy more Canadian?


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## gibor365 (Apr 1, 2011)

interesting table... European Commission - European Economic Forecast Winter 2013, click on country to see forecast
http://ec.europa.eu/economy_finance/eu/forecasts/2013_winter_forecast_en.htm


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## HaroldCrump (Jun 10, 2009)

They are all broke, every one of them.
The UK, France, and of course the US.
Credit ratings are all relative, as we saw in the wake of the US downgrade.

To be fair to the UK, they are perhaps the only country that has implemented an iota of real austerity in govt. spending.
Every other country has paid lip service to austerity, including our own, but no one has implemented any real austerity in govt. spending.


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## james4beach (Nov 15, 2012)

gibor said:


> Doesn't it mean that big institutions who needs AAA bonds will buy more Canadian?


Yes, I think it could help Canadian government bonds. The number of AAA countries continues to shrink. If I just peek at the Moody's list, these are now the only countries with AAA & stable outlook: Australia, Canada, Denmark, Finland, Isle of Man, New Zealand, Norway, Singapore, Sweden, Switzerland.


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## andrewf (Mar 1, 2010)

In that list, I imagine that Canada is the largest and most liquid bond market, except perhaps Switzerland?


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## gibor365 (Apr 1, 2011)

andrewf said:


> In that list, I imagine that Canada is the largest and most liquid bond market, except perhaps Switzerland?


and what about Australia?

What do you think, is it worth to move CBO (short term corp) to CLF (short term gov) or XBB?
XSB has ridiculous YTM 1.29%  alsmost like TDB8150 

btw, what rating has Germany?


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## Hobotrader (Feb 10, 2013)

These downgrades are kind of funny. Italy raids Fitch's office after their downgrade, and US prosecutes S&P for negligence for 2008 (even though each one of the big 3 were equally negligent. I was short the pound in November/December...ugh...to early. This was a spectacular 1000 pip drop on the GBP/USD. I would think Germany is AAA.


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## jslmsca (Aug 26, 2012)

james4beach said:


> If I just peek at the Moody's list, these are now the only countries with AAA & stable outlook: Australia, Canada, Denmark, Finland, Isle of Man, New Zealand, Norway, Singapore, Sweden, Switzerland.


I checked Moody's site but couldn't find that list. Do you have a link?


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## james4beach (Nov 15, 2012)

jslmsca said:


> I checked Moody's site but couldn't find that list. Do you have a link?


This is from wikipedia so you would have to double check to be absolutely sure
http://en.wikipedia.org/wiki/List_of_countries_by_credit_rating


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## HaroldCrump (Jun 10, 2009)

The credit downgrade is perhaps not the worst thing for the UK right now.
In fact, in some ways, this may be exactly what their central bank and the Chancellor of the Exchequer might have hoped for in their heart of hearts.
They might even have begged Moody's or S&P to do this.

A credit downgrade, if it leads to a currency sell off as it happened with the GBP today, is essentially the same thing as a monetary stimulus.
Without anyone within the BoE having to lift a finger.

It devalues the currency, makes exports cheaper, and imports dearer.
It has the same effect as inflation within the economy, and inflation is the wet dream of every central banker today.

All in all, I'd think the British bankers and policy makers are sitting pretty pleased as a punch, to use their own expression.


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## doctrine (Sep 30, 2011)

Canada and Australia both got their acts together after Moodys/S&P credit downgrades. The reaction was similar here if you recall. "Who are these guys anyway?" But it was a prompt to start getting the books in order. Maybe these downgrades will prompt other countries to do the same.


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## Ethan (Aug 8, 2010)

HaroldCrump said:


> The credit downgrade is perhaps not the worst thing for the UK right now.
> In fact, in some ways, this may be exactly what their central bank and the Chancellor of the Exchequer might have hoped for in their heart of hearts.
> They might even have begged Moody's or S&P to do this.
> 
> ...


This post is why I think the PIIGS countries should be begging to get off the Euro, and returning to the Escudo/Lira/Pound/Drachma/Peseta. Remaining in the Euro is eliminating the export driven stimulus that a falling currency provides.


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