Forbes & Sierra Mutual Funds CIO on the Implications of Recent U.S. Bond Rating Downgrade

U.S. Loses Second Triple-A Bond Rating But Retains Its 'License To Be Irresponsible'

Treasury-bond yields were stable on Wednesday but edged up on Thursday, with the 10-year benchmark rising to 4.19% from 4.05% before the downgrade. Long-term U.S. yields are almost a percentage point below those of instruments with maturities of one year or less -- the so-called inverted yield curve -- a possible sign of an impending recession but certainly not an indicator of bond-market panic.

"When you're talking about the difference between triple-A and double-A, they're basically the same thing," says James St. Aubin, chief investment officer of $5.6 billion Sierra Mutual Funds. Fixed-income professionals feel they do a better job of predicting default risk by determining market interest rates than companies like Fitch can achieve with credit ratings.


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