The fact that the major credit ratings agencies still make news is one of the more peculiar financial topics of the 21st century. After being worthless during the credit crisis and then being labeled worthless after the fact by the media, somehow S&P's cut of the UK's credit outlook to negative is reverberating through global markets today. And now investors are wondering if the US is next.
Without laying out a thousand more reasons why no one in the world should pay attention to this, below we highlight a chart of the credit default swap (CDS) price per year to insure $10,000 of UK sovereign debt for 5 years. Since default risk peaked in late February, the cost to insure UK debt is down 50%! The S&P outlook cut today moved the CDS price from 72 bps to 82 bps. This move barely shows up on the chart and highlights that the bond market surely doesn't care about S&P's call. And where the heck was S&P prior to and during the 900% (yes 900%!) rise in UK default risk in 2008 and early 2009?
Someone needs to downgrade S&P and boot them right out the door. It would please me very much if all these so called rating systems were booted. They're totally worthless,IMO, and do far more harm than any good.
Posted by: janet | May 21, 2009 at 04:34 PM
AGree with Janet. Who is paying for their services, and why?
Posted by: Peter | May 21, 2009 at 04:56 PM
Virtually nothing is AAA these days so whats the big deal
Posted by: GMS | May 22, 2009 at 07:43 AM