On 1 November 2010 the Fed commenced QE2, purchasing US Treasurys with the stated intention of reducing long term interest rates. Over the next 4 months, 10-Year Treasury yields rose by 120 basis points (1.20%).
Why do we need the Fed, who can’t punch their way out of a paper bag, when a rating agency (S&P) can send yields plunging 65 points in less than two weeks. 🙂
There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating. There is compelling evidence that the ratings agency made selective disclosure of its downgrade decision before it made it public last Friday evening. A reader told us certain hedge funds were informed Tuesday and traded successfully on the information. A separate source had told me certain banks were briefed on Thursday and were told of the US downgrade but assured their ratings would be unaffected. On Friday morning, Twitter was alight with the news.
It appears that some market participants were aware of the coming downgrade even earlier — on Friday [?] the previous week.
