Wednesday, August 3, 2011

Moody’s and Fitch about US credit rating

Moody’s Investors Service and Fitch Ratings confirmed US top credit ratings but warned that the nation may be downgraded if it doesn’t manage to reduce the debt and its economy continues weakening.

Moody’s claimed that the decision on the rating may be made within 2 years or “considerably sooner”.

According to Fitch, the ratio of general government debt, including state and local governments’ debt, will reach 100% of GDP in 2012. That’s the most of any AAA-ranked country. The agency points out that while the rating may be cut in the medium term, the near-term risks aren’t very high as the agreement on lifting up the debt ceiling and cutting deficit is only a first step. Fitch plans to finish the rating’s review in August.

For now the threat of US downgrade was overweighed by concerns about the nation’s economic slowdown that has been supporting demand for Treasuries. The yield on the 10-year bonds fell to 2.59% approaching the minimal levels since November and staying below the decade’s average of 4.05%. 

Analysts at JPMorgan Chase believe that in case of the downgrade US borrowing costs will be increasing by $100 billion a year, while 50-basis-point increase in Treasury yields would reduce American economic growth by about 0.4 percentage points.

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