The return on the Government’s benchmark 10-year bond rose to 2.16%, as investors reacted to the move by the credit ratings agency, Moody’s.

However, they remain well below the year high of 2.44% seen last March.

Commentators noted that with a central bank willing to undertake more quantatitive easing, there is little risk of the bond markets selling-off hugely as a result of the downgrade.

The real pain will come in the foreign exchange markets instead. Sterling fell to a two-year low against the dollar on Friday evening after the downgrade announcement, dropping through $1.52, and that weakness continued in Asian trading this morning as the pound briefly moved below $1.51.

By 8:29am, the pound was at $1.5146, marginally above the year low of $1.5073 seen overnight.

Paras Anand, head of Pan-European equities at Fidelity, said while sterling could fall further in the next few months, given the lows at which the currency was already trading, the effect could be muted.

“The impact on sterling could be modest from here with the market having arguably moved ahead of the announcement,” he said.

“However, the greater impact could be the evaporation of the fledgling optimism that the economy may be about to turn given improving employment numbers, recovery in house prices and the prospect of moderating austerity.”

But while the pound moved lower, stock market investors shrugged off the downgrade, with the FTSE 100 climbing back near to multi-year highs in early trading today.

By 08:29am the blue-chip index was at 6,379 points, up 0.7% or 44 points. Last week it went through the 6,400 mark during trading, closing at a five-year peak of 6,395.

Markets in Asia were also upbeat, in particular Japan where the Nikkei 225 closed up 2.4% at 11,663 points.

This followed reports the Bank of Japan is to get a new governor, who has criticised the previous administration’s attempts to combat deflation.