Hello
I am new to trading so please forgive my naive
If our debt ceiling is not increased news says our security rating
wi ll be lowered and this will cause interest rates to increase. I fail
to see the connection here. I would think interest rates would be
lowered and this would be less attractive to investors. PLease
explain. thanks jase.
A lower credit rating implies greater risk of default, therefore investors demand higher returns to compensate for the higher risk.
thanks
Would the higher interest rates attract more foriegn investment?
Maybe yes, maybe no. Like I said, risk and rates are linked. If rates are rising, at a certain point they will reach a level where the return is seen by investors to offset the risk and they will invest. Some, however, will never want that level of risk and won’t.
yes but some of the big funds ie pension and insurance wouldnt be able to invest in us treasury bills if they lost their AAA rating
countries with big USD treasury holding will also diversify becuase of the increased risk, i think that more treasuries would be sold by foriegn countries/firms than would invest overall