The Greece downgrade non-event
Here’s a graph of the stock market plunge in the wake of Moody’s shocking four-notch downgrade of Greece to junk status:
By my eyes, that’s a drop of about 2 points in the S&P 500, or 0.18%. In other words, the market didn’t even blink.
There are two big lessons here, I think. Firstly, beware all market reporting: you can be quite sure that if the market was down sharply today, everybody would be citing the Greece news as the reason for that. And secondly, no one cares about the ratings agencies any more. Moody’s is a joke, it’s massively behind the curve, and bond investors feel free to ignore anything it says.
It’s true that there are still some bond investors who are constrained by credit ratings, but they’re not the kind of people who are playing in the market for Greek debt, which has for months been dominated by European banks and the ECB. Even so, a monster downgrade of an EU country to junk status would have caused chaos in the markets not all that long ago.
So well done, markets, for finally treating the ratings agencies with the respect they deserve — which is to say, none at all. Now let’s try to get the government to do the same thing, and get rid of the silly and outdated NRSRO designation.