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From everything I read, the U.S. debt downgrade is expected to drive up borrowing costs all across the board. But I have a theory that it will actually lower the borrowing costs of large, financially sound corporations. After the downgrade, the supply of AAA-rated debt has shrunk, so bond buyers will need to look for other alternatives, e.g. top-rated corporate bonds such as Exxon Mobil. This increased demand would allow Exxon Mobil to issue its bonds at lower rates, resulting in lowered borrowing costs.

Would it make sense for an individual investor to consider a greater allocation towards equities of companies with pristine credit ratings?

Are there any studies that support or refute this theory?

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Tony the Pony
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In a relative sense yes there is potential for this. For example Microsoft maintained it's AAA rating. (on the other hand, MS has so much cash, you wonder what it might need to issue bonds for.)

Chuck van der Linden
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