Money manager reaction to Standard & Poor's downgrade of the U.S. government was mixed, with Bill Gross, co-CEO of Pacific Investment Management Co., saying S&P showed “spine” by cutting the U.S. debt rating and Legg Mason Chief Investment Officer Bill Miller saying the rating company erred.
Peter Fisher, head of fixed income at BlackRock, said Treasuries will remain “the hedging vehicles of choice.”
“I think S&P has demonstrated some spine; they finally got it right,” Mr. Gross, who has been critical of Treasuries for months, said in a Bloomberg Television interview on Sunday. The U.S. has “enormous problems,” he said, referring to the country's mounting debt.
BlackRock said in a statement that the Federal Reserve “will want to continue supporting the recovery in any manner it can in light of an extraordinarily anemic real growth rate” this year. The Fed's Open Market Committee meets Tuesday.
In a letter to clients on Legg Mason's website, Mr. Miller said the downgrade “was precipitous, wrong and dangerous. At best, S&P showed a stunning ignorance and complete disregard for the potential consequences of its actions on a fragile global financial system.”
Mr. Miller wrote that the downgrade was “wholly unnecessary and the timing could not have been worse.” He also attacked the power that ratings agencies such as S&P wield in the markets.
“It is totally unacceptable that privately owned, for-profit companies should have special, legally sanctioned status at the heart of the financial system to function as quasi-regulatory authorities whose opinions can determine what securities financial institutions can hold, how much capital they need, what the borrowing costs of every member of the system will be, all based on secret deliberations without any accountability,” he wrote. “The disastrously flawed ratings of these agencies were at the heart of the financial crisis of 2008, and this unilateral action by S&P threatens to create mayhem yet again in the system by creating uncertainty about the ability of the United States to function in its unique and critical role in the global financial system.”
Executives at BlackRock, along with those at Western Asset Management Co. and Northern Trust, have said the rating cut won't change their view of Treasuries.
BlackRock's Mr. Fisher said Treasuries remain the most liquid and transparent investments even after they were downgraded by S&P. The U.S. will probably maintain that position over the next few years, he said.
“The fact of the downgrade won't change in the near term how we use and think of U.S. Treasuries,” Mr. Fisher said in a telephone interview Treasuries “will still be the hedging vehicles of choice,” for investors looking to reduce risk in their portfolios, he said.
Stephen Walsh, CIO at Western Asset, said that funds at the firm won't change the way they invest because of the downgrade.
“Our conversations with central banks and foreign investors show that they won't view Treasuries differently,” Mr. Walsh said in an interview.
P&I's News Editor Rick Baert contributed to this story.