Putting aside the many failures of the credit rating industry (who deserve a lot of blame for the crisis) this is very bad news for the UK. Losing the AAA rating will mean higher costs for borrowing, which means higher taxes and/or fewer services. Once again, the selfishness of the bankers who have bounced back will probably end up costing people yet again. Not to be alone, other European countries as well as the US are also eying potential problems in the near future with financing debt. Tell me again why both Obama and Bush made it so easy for the bankers to recover so easily?
Scott Mather, the head of global portfolio management at the world's largest bond investor Pacific Investment Management Co (Pimco), also said the eurozone's potential joint bailout of Greece with the International Monetary Fund would be ineffective.
On Monday, there was a marked sell-off of Greek government debt and an auction of bonds on Tuesday went badly. The spread between the yield on Greek bonds and German Bunds soared again to 340 basis points. Pimco has previously said that Greece's "initial conditions and demographics are abominable".
Pimco is reducing the weight of UK, US and European sovereign debt in its portfolios. "Miracles are needed in the next six months in order to keep economic growth in the developed world," Mr Mather said. Pimco stated last month that it was keeping its negative outlook on British gilts because of fears of inflation and a further deprecation of sterling.
