Standard & Poor’s Euro Region Downgrades
Last week Standard & Poor's made headlines once again as they cut their ratings of nine euro-region countries, including France. As we discussed back in August when S&P downgraded their rating of U.S. Treasuries, history suggests that ratings agency downgrades tend to be a lagging indicator. J.P. Morgan Chase & Co. research shows that 10 year yields for the nine sovereign debt issuers that lost their AAA status between 1998 and last year's U.S. downgrade rose an average of two basis points the next week. It is worth noting that French 10 year yields were flat in their first day of trading since the downgrade.
While the future of the European debt issue remains a question mark, policy makers in the Euro zone continue to work towards resolving the crisis. Many of the impacted nations have already enacted steps to cut spending and shore up their banking systems. These most recent downgrades may indeed serve as encouragement to the European Central Bank and impacted nations to take further action.
Even with these current troubles in Europe, we remain committed to globally diversified portfolios. We believe the market has priced in the known and perceived risks. As always, we will continue to monitor client portfolios to look for opportunities to rebalance and harvest tax losses. Please do not hesitate to call us if you have any questions or concerns.