Exactly a year ago on the evening of August 5, 2011, the world learned that S&P stripped the U.S. of its sterling AAA sovereign credit rating.
Some experts believed that this was the beginning of the end. The fear was that U.S. Treasury rates would surge, making the financing costs of the government’s liabilities unbearable. Eventually, stocks and the economy would collapse.
Well, none of that happened. Instead, borrowing costs fell to all-time lows and stocks have since rallied to near all-time highs. The S&P 500 is up 16 per cent since the downgrade.
But should anyone really be surprised? After Japan and Canada lost their AAA ratings, their stock markets also saw double-digit gains. On average, when a country loses their AAA ratings, their borrowing costs fall too.
Here’s a one-year look at the 10-Year U.S. Treasury yield:
Here’s a one-year look at the Dow, S&P 500, and Nasdaq composite:
Photo: Google Finance