Salient to Investors:
Daragh Maher at HSBC said Moody’s downgrade was not unexpected, and the drop in the pound in 2013 is small when framed in the context of a longer time-frame, so further falls would not represent an overshoot. Maher said the comfort expressed by the gilt market is largely built on the idea that the U.K. can print its own money and therefore avoid defaulting on its debt, but this keep investors in the pound awake at night.
Peter Kinsella at Commerzbank said there’s a very clear divergence of future expectations of monetary policy between the U.K. and the US, and says we could see the pound fall to $1.45 to $1.47.
The European Commission predicts Britain’s debt as a percentage of GDP will rise to 98 percent in 2014 versus 95.4 percent in 2013 and 90 percent in 2012.
Moody’s said the U.K.’s high and rising debt burden means deterioration in the government’s balance sheet is unlikely to be reversed before 2016.
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook in 2012. Investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P versus the longer-term average of 47 percent, based on more than 300 changes since 1974.
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