Fund managers seek freedom not to sell on U.S. downgrade

[dkf]

(Reuters) - Some major bond fund managers are asking their institutional clients to consider waiving strict requirements that might force mass selling of Treasury bonds if the United States loses its AAA rating.

Pension funds, endowments and other large investors typically establish rules governing how their assets can be invested when they sign on with a money manager. Some analysts fear a downgrade of the U.S. rating would spark a mass sell-off because of guidelines that only permit investments in AAA-rated securities.

Conservative investors would be poorly served if fund managers had to sell off Treasury securities because of a downgrade, said John Donaldson, director of fixed income at Haverford Investments in Radnor, Pennsylvania.

"In that situation, you'd want the safety of the instruments most likely to pay off," he said "It's hard to say a flight to quality should include something else."

http://www.reuters.com/article/2011/07/28/us-usa-debt-waivers-idUSTRE76R6MY20110728

[RB TexLa]

1. This is what the rules are for, if a country's rating is dropped you don't invest in them

it's very simple.

[PDJane]

2. It's those debts that the GOP most want to default on;

The debts to her own citizens. You know, like pension funds and so on. That is where most of the debts are; 9.8 trillion USD is owed to Americans. The money owed to China is paltry!

Now, of course, my opinion would be that taxing those who can afford it and removing the SS cap would be a fine idea, as would letting the Bush tax cuts expire. Take care of the debt in no tme, eh?

Mass stupidity.

[DLnyc]

3. nice chart here, from wikipedia:

found at http://en.wikipedia.org/wiki/United_States_public_debt

[Angry Dragon]

5. +1000

[girl gone mad]

4. This is why the downgrade is not very important.

They got nowhere else to go and a sovereign currency government can always pay up.

[dkf]

7. Metals. A basket of currencies. I read institutions were liquidating money market funds

To move into Germany.

We shouldn't take it for granted that we are the only option. The more we screw up the more they will look elsewhere.

[girl gone mad]

8. lol.

Any manager that moved me into Euro right now would be dropped like a hot potato.

The US government doesn't need to borrow in order to spend. There is a demand for our bonds because we're considered a safe bet. If that all demand went away, we could still spend.

If we stop spending, where would the bond markets get more dollars to trade for our interest-bearing bonds?

[dkf]

9. German stocks actually. But that was just the inflows not necessarily connected to the outflow.

And we do not exist in order to create bonds for people to invest in. Is that really the best use of capital?

[girl gone mad]

10. Never said it was the reason we exist or a good use of capital.

But you should understand that the bond market doesn't have all that much leverage over us.

[Electric Monk]

6. The phrase "left holding the bag" comes to mind.