Inching Toward the Sovereignty Crunch

You wouldn't know it from the shape of the yield curve, but Treasuries and gilts are getting increasingly risky:

Moody’s Investors Service said its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.

Think a sovereign debt downgrade can't happen in the Anglo-West? Think again! Look how quickly the possibility of a Greek sovereign default ramped its yield curve and took the air out of that country's equity market. We'll see action like that in the U.S. sooner or later (probably sooner).