|Who 'made $10bn on 10/1 bet that U.S. credit rating
would be downgraded'?
Mail | August 9, 2011
A mystery investor or hedge fund reportedly made a bet of almost $1billion at odds of 10/1 last month that the U.S. would lose its AAA credit rating.
Now questions are being asked of whether the trader had inside information before placing the $850million bet in the futures market, or if the bet happened at all.
There were mounting rumours that investor George Soros, 80, famously known as ‘the man who broke the Bank of England’, could be involved.
He made more than $1billion on currency speculation when the British pound left the Exchange Rate Mechanism on Black Wednesday in 1992.
But a source with knowledge of the firm said Soros was not involved in the rumoured trade and questioned whether in fact there had been such a trade at all.
The latest bet was made on July 21 on trades of 5,370 ten-year Treasury futures and 3,100 Treasury bond futures, reported ETF Daily News.
Now the investor's gamble seems to have paid off after Standard and Poor’s issued a credit rating downgrade from AAA to AA+ last Friday.
Whoever it is stands to earn a 1,000 per cent return on their money, with the expectation that interest rates will be going up after the downgrade.
The link has been made to Mr Soros in part because he has been tied to President Obama’s administration since 2008, reported The Examiner.
He also recently stopped managing money for outside investors, meaning he is under less scrutiny from the Securities and Exchange Commision
But the mystery bet could easily have been made by another trader with similar resources, despite Mr Soros’s links with the Obama administration.
The bet also raises questions of whether President Obama and Treasury Secretary Timothy Geithner knew that a downgrade was on the cards.
Mr Geithner said in April there was ‘no risk’ of a downgrade - but the government now appears annoyed, not surprised, by last week’s decision.
He has since slammed S&P for showing 'terrible judgment' in their decision and a 'stunning lack of knowledge' of U.S. fiscal budget maths.