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By far, this is the most poetic and deep explanation for the bizarre turn of events yesterday, when S&P accidentally downgraded France, only to correct it less than an hour later.It comes from Deutsche Bank’s fixed-income strategist Jim Reid:
Only last week I was reading an article on quantum physics that although bending my mind to places it doesn’t normally go, basically told me that there is a ‘many worlds theory’ where there are infinite versions of each event. Many parallel universes if you like. Yesterday perhaps saw the world of quantum physics misfire as we briefly entered one of S&P’s alternative universes where they have just cut France from AAA. An email was sent out by S&P in the afternoon suggesting that France’s credit rating had been downgraded. Then less than half an hour before the OAT market close the rating agency released an official statement clarifying that France remains on AAA/Stable and email was due to a “technical error”. The rating agency is investigating and France’s Finance Minister has also asked the market regulator to do the same. The erroneous email drove the 10yr OAT around +10bps to close near the day’s highs of 3.466%. French spreads moved around 20bp wider to close at another 21 year high to bunds (168bp). The good news is that the denial led to an affirmation of the ratings that helped fuel the risk rally for the rest of the day (S&P 500 +0.86%).
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