Jason Katz, Managing Director of the UBS and Senior Portfolio Director, analyzes the stock market after the retro-on-one of the Moody credit rating on “Varney & Co.”
Friday, Moody’s notes announced a demotion of the Credit Credit of the United States government, by lowering it from the higher level of the rating agency in the midst of concerns concerning the increase in national debt, which could have implications for the larger market.
Credit ratings are used by analysts to determine the solvency of the debt issued by a government or a company. Higher credit ratings at the top or near the top of the rating scale are considered less than a risk of defect than those at the lower end of the scale.
When rating agencies retrographer the credit rating of a country or a company, it can serve as a signal to the market that debt is more risky, which can cause higher interest rates to compensate for additional risk. In the case of the federal government, this means more expenses on the interest costs incurred by the national debt.
The company has declared that demotion “reflects the increase of more than a decade of public debt ratios and interest at the levels which are significantly higher than the sovereigns noted in the same way”.
“Administrations and successive congresses and the congress did not understand the measures aimed at reversing the trend of major annual budgetary deficits and increasing interest costs,” said the company. “We do not think that the multi -year material reductions in compulsory expenses and deficits will result from current tax proposals considered.”
Moody’s Downrades US Credit Note on the increase in debt
The American credit rating has been demoted by the three main rating agencies since 2011. (Samuel Corum / Getty Images)
Moody’s downside on the US Credit of the AAA in AA1 on its 21 -year -old scale was announced after the closing of the market on Friday, May 16. During the negotiation session on Monday, the yield on the bond of the Treasury at 10 years of reference culminated at 4.56% before decreasing to around 4.45%. The 10-year-old yields started the year more than 4.5% were around 4.3% for a large part of March and April before mounting this month.
The 10 years is used as a reference for other interest rates, including mortgages and bond yields for companies.
The secretary of the Treasury, Bessent, rejects the demotion of the American credit of Moody as “late indicator”
The Congress is considering a tax package which could expand the deficit in the years to come. (Saul Loeb / AFP via Getty Images)
In March, Moody’s warned that the growth of national debt became unbearable and put the United States at high risk of degradation. He wrote that: “Even in a very positive and weak economic and financial scenario, the affordability of the debt remains considerably lower than for other sovereigns evaluated and very well rated”.
The company noted that the cost of interest payments on debt should drop from 9% of federal income to 30% of income by 2035. It added that if the importance of the US Treasury and US dollar market as a global reserve currency have contributed to supporting the enlargement of the AAA, it also saw the decrease in the approach.
Moody’s demograd the third of the three main rating agencies to reduce the US credit note by the next level.
The budgetary force of the American government deteriorating, the warnings of Moody
The secretary of the Treasury, Scott Bessent, rejected the demotion of Moody as a “late indicator”. (Images Andrew Harnik / Getty)
In August 2023, Fitch Ratings downgraded the United States from a notch of its highest note from “AAA” to “AA +” and quoted a “erosion of governance” which led to repeated confrontations on the limit of federal debt.
Fitch said that federal deficits expanding and exacerbating an already important national debt, as well as imminent budgetary challenges posed by the increase in Social Security and Medicare expenses, contributed to this decision. He also declared at the time that he planned a slight recession at the end of 2023 and at the beginning of 2024, although the American economy did not finally slip into the recession during this period.
The first demotion of the American debt took place in 2011 in the middle of a dead end at the Congress during a debate on spending reductions and the limit of debt, because Standard and Poor’s (S&P) reduced the credit note of “AAA” to “AA +” on tax concerns.
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S&P said that “prolonged controversy of the increase in the ceiling of statutory debt and the debate on associated fiscal policy” said it was unlikely that the congress will reduce the growth of federal spending or stabilize the burden of the federal government’s debt.
