World markets braced for flight to safety
World markets are expected to open heavily down on Monday after the decision by Standard & Poor’s to downgrade the US sovereign credit rating from AAA to AA+.
By Katherine Rushton
06 Aug 2011
After a week in which some $2.5 trillion (£1.5 trillion) was wiped off the value of global equities, investors are set to seek further solace from traditional indices, with gold and other safe havens likely to continue their ascent.
Conversely, however, the Government’s borrowing costs are expected to hit record lows in the coming weeks, as investors turn to UK government debt as a relative safe haven for their money, amid fears of a new global recession.
Banks and investors who had been placing their bets on US government debt will be quick to move their investments when trading begins tomorrow.
With UK government debt still enjoying an AAA rating, the increased demand will push down yields, the implied interest rates, even further.
Many pension funds are obliged to have their money in AAA-rated investments, and other investors will be wary of volatility in the stock market that is expected to ensue.