US 'still attractive to park money'

From The Guardian
By Richard Blackden, New York
Last Updated: 2:53PM BST 06/08/2011
China has rebuked the United States for its Analysts at Capital Economics said the move will "surely rock the financial markets when they open on Monday" but added that any moves are likely to be short-lived because the slowing global economy makes US government debt, or Treasuries, an attractive place for investors to park money. At roughly $9 trillion in size, the Treasury market has advantages and liquidity that rival government bond markets, including Britain's, cannot match.

Excerpt from report below:

Despite the threat of the downgrade, the prices for Treasuries are close to their highs for the year as investors seek safe-havens and expectations for economic growth diminish.

Whatever the reaction next week, investors are clearer that the downgrade is a severe blow to America's prestige and is also likely to increase the US government's borrowing costs. JPMorgan this month estimated that such a move could add about $100bn a year to America's funding costs as lenders demand more to compensate for the greater risk. The US spent $414bn last year on interest payments.

"I have a feeling the dust may settle quite quickly," said David Buck of BGC Partners in London. "The US Treasury market is the most liquid in the world."

Either way, it frays nerves further before what was already going to be tense opening of financial markets next week.


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