We've noted before that the ultimate irony in the controversy over Standard & Poor's decision to downgrade Treasury debt to AA+ from AAA was that the Treasury market soared. Yields tanked. Heck, people are all of sudden talking about refinancing again.

In article headlined, "Investors Downgrade S&P, Buy Treasuries," Bloomberg notes: "If anything, the decision from S&P, the largest ratings provider, resulted in an upgrade of U.S. securities as the American bond market outperformed world bond indexes during the period since the downgrade by S&P."

In a sense, this is bad news for S&P because it highlights the folly of sovereign credit ratings. The firm needs to understand that as it defends itself, it cannot simply rely on the arcana of the sovereign ratings industry. To many Congressmen and others, it will certainly seem odd for the firm to be downgrading U.S. debt based essentially on our democratic political process while upgrading China in large part because of the strong communist party rule.

When you are strictly evaluating creditworthiness, this might make sense, as the Chinese government doesn't have to deal with budget disputes the way we do. But S&P thrust itself into a wider spotlight and the rules of evaluation will be different. What is incumbent on the firm now is to provide a transparent explanation for what it did. You get the feeling that regulators are bent on extracting that one way or another.  

For more:
- here's the article

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