US AAA rating threatened

S&P has placed a negative outlook on the AAA rating for US Treasuries. S&P stated that there is "material risk" that the government will not a budget that will solve the ongoing deficit problem. If an agreement is not reached, S&P will view the fiscal position of the US significantly weaker than its AAA peers.

The reaction has been swift. A sell-off in both bonds and stocks represents a flight to quality, but since the open bonds have rallied slightly but stocks have maintained their decline even though levels are off the lows. The expectation is that taxes will have rise and spending ill have to decline. This is a toxic combination for stock markets.