As the world anxiously awaits the official word on Standard & Poor’s downgrades of European countries, there are already numerous reports on what to expect. Bloomberg News, citing reports in Agence France-Presse, reports that this will not be a blanket downgrade of the region, but rather one that targets primarily the triple-A ratings of France and Austria. Germany’s top-notch rating would remain in tact.
The report also says that the announcement will be made late this afternoon.
Stock markets are in a funk over this turn of events, with the S&P 500 down 0.7 per cent in midday trading on Friday. Bond markets are also reacting. German and U.S. 10-year bond yields fell as investors moved into typical haven investments; in particular, the yield on the U.S. 10-year bond slipped to just 1.85 per cent. The yields on Italian and French bonds rose slightly.
The weird thing here is that this news was widely expected. In December, S&P warned that it had put the credit ratings of 15 European countries on watch for a potential downgrade. Meanwhile, French President Nicolas Sarkozy has appeared to accept France’s fate of losing its top-notch rating.
“If rating companies pull it, we’ll face the situation coolly and calmly,” he said on Dec. 12, according to Bloomberg.
The question now is, will markets also face the situation coolly and calmly?