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Markets to see short-lived negative knee-jerk reaction on U.S. losing AAA rating:experts

(Xinhua)

14:16, August 08, 2011

The Monday financial markets may see negative knee-jerk reaction on U.S. losing AAA credit rating, but the downward trend may not sustain, experts told Xinhua on Sunday.

The rating Agency Standard &Poor's late Friday slashed U.S. long-term credit rating from AAA to AA+ for the first time in history. After the discussion over the weekend, many experts came to the conclusion that it may not have significant impacts on financial markets or macroeconomy.

"The S&P downgrade was anticipated by many investors and is already largely discounted in stock and bond markets." Mark Zandi, chief economist of Moody's Analytics,said, "Moreover, Moody's and Fitch have reaffirmed the U.S. AAA rating, which should assuage investor concerns."

After the downgrade, there are growing concerns that investors could fall into panic dump of U.S. bonds, pushing up U.S. borrowing cost.

But Zandi pointed out, recently investors are buying 10-year Treasury bonds at near record low rate of about 2.5 percent, suggesting the investors still have confidence.

Zandi was echoed by Raymond Carbone, an experienced trader in the New York Mercantile Exchange, by saying S&P's downgrade was not surprise for the market and any fall in the markets could not be long.

"This is certainly not good news and could be bearish. But its impact may not sustain."Carbone told Xinhua. He predicted that the markets would be very volatile next week and the downgrade would for sure add volatility.

Carbone also stayed optimistic about U.S. bonds, citing lack of alternatives."Investors don't have many other choices. Compared to other government bonds, U.S. Treasury bonds remained to be safer."

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