r/Economics • u/marketrent • 7h ago
Editorial The bond market has stopped respecting reputations — Bond markets are increasingly moving ahead of the ratings agencies, with France and Argentina showing how quickly investors can reprice sovereign risk
https://stockhead.com.au/experts/the-bond-market-has-stopped-respecting-reputations/19
u/CornerShark 7h ago
Well yes. That’s why the market exists.
There are average spreads in each rating bucket. If an issuer differs from that average then that means it’s potentially mispriced and a trading opportunity exists.
Rating agencies are more important for esoteric and/or idiosyncratic issuers that no one knows in detail (like a random municipality in Kansas).
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u/bejammin075 6h ago
The US 10-year bond was crazy today. First the big spike, which made sense because of the inflation report. But then it plunged shortly after, which has me puzzled. Anyone understand why that happened?
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u/PrinnyFriend 44m ago
Trump announced they will not attack Iran until after the November election. Oil also dropped at the same time.
Is it true? Probably not but the market manipulation has happened multiple times and it is the retail investor that gets fleeced in all this. $600 million dollars worth of trades were made minutes before the announcement because Trump announced it on his 100k per month subscription early access tweets.....before he announced it at the whitehouse/twitter.
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u/DramaticSimple4315 6h ago
These are a lot of words just to say that government bonds have taken a hit with the crowing out effect powered by the AI build up which sucks all the money into data centers down in south Ohio
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u/marketrent 7h ago edited 7h ago
Bookend excerpts from article by Nigel Green:
Rating agencies like to present themselves as the referees of global finance. On sovereign debt, they’ve become scorekeepers, writing down the result long after the crowd has gone home.
France is the clearest case. When one of the major agencies reviews the country later this month, it’ll be assessing a verdict investors have already delivered. French 10-year borrowing costs have pushed to around 5% for the first time since 2002, and the premium over Germany has just recorded its sharpest weekly jump in 17 years.
Any downgrade will arrive as confirmation.
Argentina shows the same lag running in reverse. Its bonds rallied hard well before it collected three major upgrades in under three months this year. By July, its risk premium over US Treasuries had dropped to around 420 basis points, the lowest in eight years. The agencies followed the money there too.
The lag matters because a vast amount of financial plumbing still runs on those letter grades. Pension rules, bank capital requirements, collateral frameworks at central banks and the mandates of countless funds are wired to them.
When the grades fall behind reality, the institutions leaning on them are carrying risks they haven’t fully priced, or avoiding opportunities they can’t yet touch.
The delay has a clear cause. Agencies are built to weigh institutions, wealth and, above all, track record. For most of the past 50 years, the approach worked well enough. Rich countries had deep tax bases, trusted central banks and generations of repayment behind them. Argentina had nine sovereign defaults on its record.
Markets have stopped accepting the shortcut. They’re pricing what governments are doing now, and they’re doing it in real time.
[...] None of this makes ratings irrelevant. They still matter enormously, because so much money is legally bound to follow them. Therein lies the danger.
When a downgrade finally lands on a large sovereign, funds tied to rating thresholds can be forced to sell at once. A gradual repricing then becomes a sudden one. The market does the thinking first, and the rules do the dumping afterwards.
France now sits uncomfortably close to such a moment. Its yields are already doing the work of a downgrade. A formal cut would hand the job to every mandate written around the old grades.
The signals worth watching have moved. Bond spreads, the cost of insuring against default, debt interest as a share of revenue and a government’s appetite for unpopular decisions all reveal far more, far earlier. Credit ratings were once the first word on sovereign risk. Today they’re closer to the last.
For decades, status was the most valuable asset a borrowing nation could own. It bought cheap money whatever the books looked like. The bond market no longer accepts it as collateral.
Argentina had nothing to trade on except its actions, so it acted. France still has its reputation, and it’s spending it at 5% a year.
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