Rating cut

The 10 year US government bond yield is back to 4.1%, up from 3.3% at the beginning of April. The surprise rating downgrade by Fitch of the US Sovereign Bond Rating to AA+ from AAA is hitting investor sentiment further as Fitch mentions as reason for the downgrade: “the expected fiscal deterioration over the next three years, a high and growing general debt burden, and the erosion of governance relative to other ‘AA’ and ‘AAA’ related peers”. While bad for sentiment, we understand this downgrade will not lead to forced selling of US Treasuries by institutions. To us, the overall game plan for bonds remains unchanged.