Euro-Crisis Fallout: ’Double A is the New Triple A’
Story by Bloomberg
Europe’s failure to agree on a comprehensive solution to the sovereign debt crisis threatens to consign AAA rated bonds in the region to history.
Top-rated agencies in the 17-nation euro area have at least 847.5 billion euros ($1.1 trillion) of debt outstanding, according to data compiled by Bloomberg, and will be at risk should their sovereigns be downgraded. Moody’s Investors Service said today it will review the ratings of all European Union nations after last week’s summit failed to produce “decisive policy measures,” while Standard & Poor’s announced Dec. 5 it may cut 15 euro members, including AAA rated Germany and France.
“Double A is the new triple A,” said Raphael Gallardo, the head of economic research at Axa Investment Managers in Paris, which manages about $690 billion. “De facto, there are no more highly liquid, risk-free assets. It’s a dangerous problem because in a market crash, liquid AAA assets are the dam that contains the total exodus of liquidity.”
European leaders’ fifth attempt to draw a line under their debt woes ended in a fiscal accord that will bring tighter deficit rules, though with many details still to be ironed out and the U.K. vetoing an agreement among all 27 EU members. A lack of top-rated sovereigns would make it harder to gauge a risk-free benchmark for securities, reduce participation in euro-region debt markets and threaten ratings of agencies and supranationals such as the European Investment Bank and World Bank.
http://www.bloomberg.com/news/2011-12-12/eu-failure-on-unanimous-agreement-may-consign-top-rated-bonds-to-history.html
Europe’s failure to agree on a comprehensive solution to the sovereign debt crisis threatens to consign AAA rated bonds in the region to history.
Top-rated agencies in the 17-nation euro area have at least 847.5 billion euros ($1.1 trillion) of debt outstanding, according to data compiled by Bloomberg, and will be at risk should their sovereigns be downgraded. Moody’s Investors Service said today it will review the ratings of all European Union nations after last week’s summit failed to produce “decisive policy measures,” while Standard & Poor’s announced Dec. 5 it may cut 15 euro members, including AAA rated Germany and France.
“Double A is the new triple A,” said Raphael Gallardo, the head of economic research at Axa Investment Managers in Paris, which manages about $690 billion. “De facto, there are no more highly liquid, risk-free assets. It’s a dangerous problem because in a market crash, liquid AAA assets are the dam that contains the total exodus of liquidity.”
European leaders’ fifth attempt to draw a line under their debt woes ended in a fiscal accord that will bring tighter deficit rules, though with many details still to be ironed out and the U.K. vetoing an agreement among all 27 EU members. A lack of top-rated sovereigns would make it harder to gauge a risk-free benchmark for securities, reduce participation in euro-region debt markets and threaten ratings of agencies and supranationals such as the European Investment Bank and World Bank.
http://www.bloomberg.com/news/2011-12-12/eu-failure-on-unanimous-agreement-may-consign-top-rated-bonds-to-history.html
posted by Kirk Tanter at
12/12/2011 05:19:00 pm
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