Managers seek freedom not to sell U.S. debt on downgrade

Thu Jul 28, 2011 2:53pm EDT

* Some investors limit accounts to AAA-rated debt

* Downgrade of U.S. to AA could force mass-selling

* BlackRock asked clients to decide if limits appropriate

* Wells Fargo developing plans, may ask for waivers

By Aaron Pressman and Richard Leong

BOSTON/NEW YORK, July 28 (Reuters) - Some major bond fund managers are asking their institutional clients to consider waiving strict requirements that might force mass selling of Treasury bonds if the United States loses its AAA rating.

Pension funds, endowments and other large investors typically establish rules governing how their assets can be invested when they sign on with a money manager. Some analysts fear a downgrade of the U.S. rating would spark a mass sell-off because of guidelines that only permit investments in AAA-rated securities.

BlackRock (BLK.N), the largest money manager in the world, held calls with clients last week to review possible scenarios if the U.S. is downgraded.

On the calls, which were led by senior managing director Peter Fisher and vice chairman Barabra Novick, clients were asked to consider if limitations on holding debt rated less AAA should be revised and whether strict sell-down requirements were appropriate.

"We've been working with clients steadily to make sure they are thinking about this and preparing for it," spokeswoman Bobbie Collins said.

New York-based BlackRock oversees almost $3.7 trillion, including $612 billion in actively-managed institutional fixed income accounts and $438 billion in indexed institutional fixed income accounts.

The institutional asset management unit of Wells Fargo (WFC.N) has also been talking with some of its clients about changing investment rules and possibly signing waivers to avoid forced selling of Treasuries in case of a downgrade.

The issue has only come up with "handful of accounts," a spokeswoman said. "We would like to get contingency plans in place," the spokeswoman said. "That may or may not include signing of waivers."

The San Francisco-based bank's Wells Capital Management unit manages $355 billion, including $111 billion in institutional separate accounts.

The three major bond agencies have said they will lower debt ratings of federal agencies and state and local government bonds if the United States loses its top-notch rating.

Standard & Poor's has warned that it may strip U.S.'s AAA-rating even if the White House and Congress reach a deal to raise the $14.3 trillion debt ceiling without a credible plan to reduce its deficit.

The Treasury Department has reiterated this week that the federal government will run out of funding options on Aug. 2 if the debt ceiling is not raised.

(Reporting by Aaron Pressman in Boston and Richard Leong in New York; Editing by Andrew Hay)

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Comments (1)
elderwesto wrote:
Those that would like to do this should have their citizenship revoked. There is loyalty among thieves but you should no longer consider yourself Americans.

Americans are the people that bailed you out with the TARP programs. Americans are the people that helped you again by allowing the QE programs.

Many Illegal immigrants are more better Americans than you ever will be. Many of them came here to build lives. You are working to destroy lives. They came to be part of greatness. You are willing to sell it at the first sign of trouble and for a discount.

Shame on you!

Jul 28, 2011 3:26pm EDT  --  Report as abuse
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