America’s top credit rating threatened by financial risk, warns…

Bloomberg – A Moody’s Investors ServiceThe only major debt classifier still assigned to us AAA’s highest rating indicates that its confidence is waning at the end of the government shutdown.

If this scenario is confirmed, “debt service payments will not be affected and a short-term shutdown is unlikely to disrupt the economy, This scenario highlights the weakness of US institutional and governance strength compared to other AAA-rated sovereigns.The researchers, led by William Foster, wrote in a report on Monday.

Analysts were not specific about the potential downgrade, but used exceptionally blunt language to express concerns about the path of congressional negotiations to pass a short-term spending bill needed to avert a government shutdown when the new US fiscal year begins in October.

“In a period of waning fiscal strength, driven by a government shutdown, persistent fiscal deficits and deteriorating debt repayment capacity, extreme political polarization in US fiscal policymaking will prove significant obstacles to continuing,” he added. Moody’s.

Markets have been watching for fresh credit activity since then Fitch Ratings The US downgrade in August pushed the country to the brink of default, citing concerns over political disputes over the debt ceiling.

Moody’s latest report – which left its US rating unchanged – is a sign that US debt sustainability and the politics surrounding it will continue to be an issue through the end of the year.

Speaker of the House of Representatives, Kevin McCarthyHe is unwilling to work with Democrats on temporary funding to keep the government open because of concerns about being forced out by hardliners in his own party.

These more extreme approaches have repeatedly said they are not afraid of the consequences of a shutdown, and Moody’s warning panel is unlikely to budge.

Caucuses of Republicans in swing districts, which are most vulnerable to voter backlash if government services are disrupted, are already preparing to riot to end the shutdown. But due to procedural constraints, the committee could not act quickly enough to prevent it.

Treasury yields remained higher throughout the day following the Moody’s report, 10-year yields hit their highest since early 2007.

Increased pressure

“The pressure on America’s debt repayment capacity is mounting,” Foster said in an interview after the report was released. “Weak fiscal policy,” resulting in “persistently higher fiscal deficits and higher-than-expected interest costs,” will ultimately weigh on the U.S. credit rating, he added.

His comments echo those of three major credit rating agencies in recent years. A S&P Global RatingsIn 2011 the US The first major credit rating agency to remove its ‘AAA’ rating said in March that it could downgrade the US again in the next two to three years if “unexpected negative political developments weigh on US strength”. Institutions and the performance of long-term policymaking will affect the dollar’s position as the world’s leading reserve currency.

Moody’s said the effect of the shutdown would be “concentrated in areas of high government leverage” and depend on the length of the shutdown.

–In collaboration with Eric Wasson

© 2023 Bloomberg LP.