UK At 80% Risk Of Rating Downgrade On Current Debt Plan:PIMCO
January 05 2010 - 12:02PM
Dow Jones News
The U.K. government faces an 80% chance of a credit rating
downgrade if its deficit reduction plans remain as they are, Scott
Mather, Pacific Investment Management Co.'s head of global
portfolio management told Dow Jones Newswires Tuesday.
Mather also said yields on U.K. government bonds - known as
gilts - could rise by as much as 100 basis points when the Bank of
England's bond-buying program ends,
Asked if the U.K. faced a serious risk of suffering a downgrade
to its credit rating, Mather said "I think so."
"It's just a question of when on the current trajectory, not
if," Mather said. "Based on what we know today about the debt
trajectory and about the inability to adjust that, I think it's
greater than a 50% likelihood for sure. Call it more like 80%."
Mather said the government's debt reduction plan "is lacking in
conviction and it is lacking in details."
He also said the end of the Bank of England's bond-buying
program will have a significant impact on U.K. gilt markets and
borrowing costs.
"Common sense would tell you that if you had a buyer in the
market place which was taking the majority of the sector
repeatedly... and then they disappeared, ...you would expect a
reprising, and it could be quite significant," he said in a
telephone interview.
"The estimates vary. They're really all over the map, but it
could be 50 basis points, it could be 100 basis points, in that
range."
PIMCO runs the Total Return fund--the world's biggest bond
fund.
-By Laurence Norman, Dow Jones Newswires; 44-207-842-9270;
laurence.norman@dowjones.com