Quote:
Originally Posted by giver99
If US treasuries are downgraded, they become the riskier assets so how does this work???
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If for example you have a portfolio with a weighted average of 'A' rated securities consisting of corporate bonds, government bonds, a dip in Treasuries from AAA- to AA+ would force you to sell your BBB holdings and buy Treasuries at AA+ to maintain an overall 'A' weighting. So really the full brunt of this won't necessarily be treasuries where yields blow out but rather the more riskier assets. Since the whole world's government debt is something like $42 Trillion and the US has $14 or so of it, you can't easily replace US treasuries with other soveriegn AAA bonds.