ROANOKE TIMES Copyright (c) 1996, Roanoke Times DATE: Friday, January 26, 1996 TAG: 9601260079 SECTION: BUSINESS PAGE: A-9 EDITION: METRO SOURCE: MAG POFF STAFF WRITER
IF MOODY'S CARRIES OUT ITS THREAT to downgrade government bonds, it could bring world-class trouble, brokers said. But investors don't seem to be particularly scared.
Western Virginia investors are not panicking - at least not yet - about the threat by rating agencies to downgrade some government bonds.
"Bondholders continue to see this as a political exercise," said Tyler Pugh, senior vice president and branch manager of the Roanoke office of Wheat First Butcher Singer.
Pugh said Thursday he had seen no reaction from investors buying bonds through his brokerage to Wednesday's announcement by Moody's Investors Service that it might lower the rating of $387 billion in bonds with interest payments due Feb. 29 and April 1.
But Pugh said it would be "a tragedy" for the government to default on interest payments "for political reasons."
Peter Milward, manager of the local office of J.C. Bradford & Co., also hadn't heard any reaction to the announcement, nor to a similar threat several weeks ago by Standard & Poor's Corp., another leading debt-rating service, which said much the same thing - though softer - Nov. 10, when the issue of a possible default first arose in the budget negotiations. The wording of the Moody's announcement was far more blunt and specific, referring to particular groups of medium- and long-term Treasury bonds that would be affected.
Milward said it is "disconcerting" to consider the possibility of a default by the United States government on the interest due on bonds. He said U.S. government bonds are considered the safest investment in the world, so any default would be felt around the globe.
He said he hoped politicians would settle their disputes before that happens.
Richard Wertz, assistant manager of the Roanoke office of A.G. Edwards & Sons, said the bond market was down about 1.5 points Thursday, but he would guess that was not related to Moody's threat. He said the bond market has been moving up and down every few days in recent weeks. "I think the yields are trying to bottom out, but I'm guessing."
His customers, however, had no reaction to the situation. "I don't think anyone is concerned."
Because government bonds are widely considered so safe, Wertz said, Moody's should have to downgrade other types of bonds if it lowers the rating of government bonds.
Besides being popular among people seeking low-risk investments, government securities are part of many mutual funds and pension plans.
"It's disconcerting," said Michael Smith, vice president at the Roanoke office of Davenport & Co. "The U.S. government is the last refuge for most people" who want to invest safely, he said.
So far he's seen no reaction among his customers.
When we get closer to March 1 without a resolution of the dispute between Congress and the president over the budget, he said, "there will be plenty of time to panic."
Barbara Adams, a supervisor at the Federal Reserve Bank of Richmond, said she could not comment on the reaction of its customers. She said the Richmond office had received no word from the Treasury about Moody's action.
The Associated Press contributed to this story.
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