August 15, 2011 | Catey Hill, Smart Money
This past week’s historic market gyrations have most investors worried, but none more so than retirees, who have a fixed pot that has to last as long as they do. And when the markets change dramatically, advisers say, so do the rules for turning a nest egg into income.
Dear Clients,
The credit rating downgrade of US Treasuries discussed in a previous communication has come to pass. Yesterday, S&P lowered the rating for US Treasuries to AA+ from AAA.
As noted in that earlier communication, it is likely that the impact of this action on the Treasuries market will be muted. Given that S&P has been warning about this action for some time it’s effect has been priced into the market so practically speaking we already have our answer regarding its impact. We will see on Monday how the Treasuries market will react further since the official announcement came after the market close yesterday. So far, yields on US Treasuries have been dropping as investors seeking security have increased demand for US debt. The conventional wisdom is that this rating downgrade, and the threat of further downgrades in the future, will reverse this trend and cause yields to rise as investors demand higher interest payments in return for incurring the relative increased credit risk that a AA+ rating reflects.
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