Back on July 29, I commented on how we would be discussing a downgrade of US debt this week, even if a debt ceiling deal was passed and adjustments to budget spending were made. I mentioned that the politicians had already turned off market confidence that a long-term solution would be reached, and that a downgrade by Moody's and S&P was still imminent. Well Moody's, you've got a few more hours, but I'm guessing that all of the political backlash to the S&P decision may be causing Moody's to second-guess a downgrade on their part, as well.
Monday morning will be very interesting to see how the bond markets react to this news, and what kind of risk-premium will be built into US Treasuries, if any. Even more importantly will be to continue to keep an eye on the 1 and 3 month LIBOR rates, which over the past 30 days have slowly but steadily risen from their lows.
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