The S&P Downgrades of FHLBs, Fannie Mae, Freddie Mac

I already commented on the ceremonial nature of the S&P downgrade of United States debt and believed that the debt downgrade would not have any serious impact on the markets. Well, I was part wrong and part right.

I was part wrong because the Asian markets reacted negatively, not knowing anything about the United States' Full Faith & Credit Clause. This first downgrade ever caused the panic sell off on Monday in Asia. Then the US stock opened with stocks edging slightly lower, from yesterday's close of 11,444.61 to open at 11,425.61.

However, I was part right because the bond market rallied with higher prices and lower yields: "Yields on the benchmark 10-year notes ... dropped 20 basis points to 2.37%, after initially rising to around 2.59% in Asian trading hours. Yields and prices move in opposite directions and a basis point is 1/100th of a percentage point. The decline is the swiftest one-day move since May 2009[.]" See http://www.marketwatch.com/story/treasury-yields-inch-up-after-sp-move-2011-08-07

As the stocks moved gradually lower after the open, down about 200 points, S&P dropped two more bombshells around 10 a.m.:

"NEW YORK (Standard & Poor's) Aug. 8, 2011--Standard & Poor's Ratings Services
said today that it lowered its issuer credit ratings and related issue ratings
on 10 of 12 Federal Home Loan Banks (FHLBs) and the senior debt issued by the
FHLB System to 'AA+' from 'AAA'. We have also lowered the ratings on the
senior debt issued by the Federal Farm Credit Banks to 'AA+' from 'AAA'....
In addition, we have lowered the senior issue ratings on Fannie Mae and
Freddie Mac to 'AA+' from 'AAA'...." See http://www.businessinsider.com/sp-downgrades-fannie-and-freddie-as-stocks-tumble-to-their-lows-of-the-day-2011-8

Since the announcement, the market went down another 400 points approximately. The total point drop for the day was 634.76.