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Why corporate bonds may be ‘fairly guarded’ from Moody’s downgrade of U.S. debt - MarketWatch

1. Moody's downgraded U.S. debt rating from Aaa to Aa1 due to fiscal concerns. 2. Corporate bonds are generally safeguarded; balance sheets remain strong. 3. Long-term Treasury yields increased, but AGG remained stable with minimal movement. 4. Expectations of U.S. economic resilience could limit rate hikes by the Fed. 5. Tax and spending legislation developments are critical for market outlook.

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FAQ

Why Neutral?

AGG’s minimal decline indicates resilience amidst the Moody's downgrade. Historical data shows that U.S. debt downgrades had limited long-term impact on diversified bond funds.

How important is it?

Market reaction to ratings is often high immediately but stabilizes. With AGG being broadly diversified, its reaction is muted.

Why Short Term?

The immediate reaction in Treasury yields indicates temporary volatility. Longer-term, stable balance sheets and economic recovery could stabilize AGG.

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