The Dow Jones industrial average closed down 633 points, at 10,811. S&P and Nasdaq were down more than 6.7 percent.
Treasury prices rose — despite S&P's assessment that they were a riskier investment than the debt of some other countries like Canada and France. Investors still view Treasurys as one of the world's few safe havens from turmoil in other financial markets like stocks or commodities.
The yield on the 10-year Treasury note fell to 2.35 percent from 2.57 percent late Friday. A bond's yield drops when its price rises. The 10-year note's yield fell as low as 2.06 percent in 2008. “Other AAA-rated sovereign debt issues are arguably in worse condition than the United States,” said Bill Stone, chief investment strategist for PNC Financial. He pointed to the AAA-rated United Kingdom and France. Relative to the size of their economies, both have higher debt loads than the United States. The dollar's status as the reserve currency for the world also helps keep investors coming back to Treasurys.
In other, related developments Monday:
• President Barack Obama says the U.S. always is and always has been a triple-A country, despite its rating agency downgrade. He said also the U.S. didn't need a rating agency to tell it that its political system was having trouble functioning. Speaking at the White House on the Standard & Poor's downgrade, Obama renewed a plea to Congress to take action in September of help create jobs and cushion Americans from a still-weak economy.
• Standard & Poor's Ratings Services downgraded the credit ratings of Fannie Mae and Freddie Mac and other agencies linked to long-term U.S. debt. The agency also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options. All the downgrades were from AAA to AA+. S&P says the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Stocks plunged further after the downgrades.
• Investors are frustrated. After the downgrade of the U.S. government's debt rating, many are bracing for their portfolios to take a lasting hit. Yet there's also a sense that the ratings cut by Standard & Poor's could spur Congress to take the painful long-term steps needed to confront the government's debt burden, and strengthen the economy. Getting to that point, however, will require patience.
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