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Austerity Doesn’t Pay as Credit Markets Ignore Rating Cuts

Government policy makers trying to fend off downgrades to their country’s credit ratings may have little to show for their efforts. Almost half the time when one of the companies that grade government borrowings changes its opinion, the debt market moves in the opposite direction. Data compiled by Bloomberg shows that in about 47 percent of cases, countries’ borrowing costs fall when a rating action suggests they should climb, or they increase even as a change signals a decline. The charts below are a sampling from data compiled by Bloomberg on 30 countries covering more than three decades. The research covered 314 changes in credit rating or outlook issued by Moody’s Investors Service or Standard & Poor’s. The data measures yields relative to U.S. Treasury debt, the global benchmark.

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chart key

French Yields Fall Relative to Treasuries After S&P Downgrade

Spread between French and U.S. 10-year government bond yields

Spain Endures Downgrades Despite Deepest Austerity in 30 Years

Spread between Spanish and U.S. 10-year government bond yields

U.K. Yields Fall Against Treasuries After Moody's Lowers Outlook

Spread between U.K. and U.S. 10-year government bond yields

U.S. Borrowing Costs Plunge to Record Low After S&P Rating Cut

U.S. 10-year government bond yields

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