Tuesday, January 20, 2009

Will the UK Lose its AAA Credit Rating?

First Iceland, Greece and Spain lost their AAA sovereign credit rating.

Now, Bloomberg notes:

"The U.K. government may lose its top AAA credit rating after taking a 70 percent stake in Royal Bank of Scotland Group Plc, credit-default swaps show."

Indeed, as the Financial Times writes:

The cost of buying credit protection for the sovereign debts of the UK, US, Ireland, Spain, Austria and Germany all hit fresh highs on Tuesday morning.***

The cost of buying five-year credit protection on the UK gapped wider to 133bp on Tuesday, compared to Monday’s close at 124.9bp. Ireland was out at 281bp from 275.2bp yesterday, Spain was at 156.3bp, compared to 142.5bp, Austria climbed to 157.5bp from 146bp....

Remember, this chart from December, showing one-month in credit default swaps bet against countries?

Well, Spain - which was the 11th biggest CDS target on the list, 7 places better than the UK - has already been downgraded. The UK is the 4th biggest target (right behind Greece and slightly ahead of Iceland, both of which have already been downgraded).

So a downgrade of the sovereign credit rating of the UK would be logical. See also this.

As the Telegraphs' lead economic writer says:

England has not defaulted since the Middle Ages. There is a real risk it may do so now.

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1 comment:

  1. PastorJanuary 31, 2009 at 12:51 AM

    Unless the UK and US can convince their taxpaying citizens to surrender 100% of their income for tax paying purposes, the governments of the aforementioned countries will be forced to default on their obligations. There is simply not enough capital available through its citizenry to even touch the interest on the national debt. How on earth can these countries hope to pay down their debt?? As said the once famous London banker: "Banking institutions were born in iniquity and conceived in sin." Abolish the Central Banks. Godspeed.

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