US - Moody's has become the second ratings agency to place fixed income funds on review for possible downgrade over concerns they are either entirely or largely directly invested in US Treasury and government agency securities.
The 12 funds affected include those run by Goldman Sachs Asset Management, SEI Investments, Wells Fargo, Swisscanto and iShares/BlackRock.
The move comes days after Standard & Poor's placed 76 bond funds on credit watch for the same reason. (Global Pensions: 18 July 2011)
Moody's decision comes on the back of last week's decision to place on review for possible downgrade the Aaa bond ratings of the government of the United States as well as financial institutions directly linked to the US government.
It said the review of the US government's bond rating was prompted by the possibility that the statutory debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default. In such an event, however, the rating of the US government would most likely be downgraded to somewhere in the Aa range, it added.
"While we anticipate increased market volatility and spread widening as we move closer to August 2, 2011 and beyond without some debt limit resolution, it is unclear how the volatility of bond funds with US government exposure will compare to generally elevated levels of volatility in other funds," Moody's said.
"Accordingly, Moody's is taking no action with respect to the market risk ratings assigned to these funds but will be monitoring the market impact of developments surrounding the debt limit deliberations."
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