S&P downgrades US, Treasuries go on a massive rally.
S&P downgrades global banks, the very next day (today) global markets rally and banks are up.
Now of course you can argue that these moves were to do with macro events, i.e. Treasuries rallied due to lack of safe havens in Europe and the banks rallied today due to Chinese monetary policy, but you could also say that ratings agencies are irrelevant unless there is literally no other macroeconomic news.
The question is, do the ratings agencies actually matter that much anymore? They have clearly shown themselves to be unreliable with their AAA rating of various synthetic derivatives. My view is that they only matter during times of relative economic stability / growth. When there are global macro events (such as now), nobody cares.
Your views / thoughts?
Many institutions have no choice but to listen them. Some can only hold assets that are investment grade. That's the rating agencies' power.
on the lev fin side at least, a lot of structured credit vehicles (CLO's etc) are forced to follow ratings pretty closely
I think you are looking at it all wrong. You are trying to equate a change in ratings with a change in performance for a particular security. A rating on a secuirty has nothing to do with the actual performance of that security. It is only a measure of the probability that the security might eventually default. It is a measure of credit risk. Markets are effected by many other risks, including interest rate risks, macro risks, etc.
A rating is not investment advice. It is just a part of the equation. If you want an opinion on the direction of treasuries or bank debt, look for sell-side fixed income research reports.
Well yes, just because I work for one.
It's my understanding that during the housing boom, most of the large BBs placing bets against the housing market (Goldman, Deutsche, etc) saw right through the simplistic models @ S&P and Moody's and basically labeled them as 'Wall Street Wannabes'. In other words, they took advantage of their lack of ability to rate the MBS securities. For instance, the S&P ABS team was widely known as a joke witihin Goldman.
However from what I see now, both ratings companies have put a LITTLE more time and effort into being ontop of things, especially with all the regulation now. As far as covering the Euro zone, I feel as if the ratings company I work for has done decent over the past few months. The market still follows whether it is truly reliable or not.
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