With Fitch likely to downgrade its credit rating from the “AAA” level, the US faces the risk of an index blow at a time when its debt repayments are at risk in light of the political deadlock between the administrations. President Joe Biden and the Republican Opposition.
However, a potential downgrade, if achieved, would not be unprecedented, given that Standard & Poor’s downgraded Washington in 2011 against the backdrop of the debt ceiling crisis at the time, and could have limited effects on the world’s largest economy. High Demand for US Treasuries in 2011 Markets.
What does a “AAA” rating mean?
AAA is the highest level credit rating agencies award for government and corporate credit.
The three major rating agencies – Standard & Poor’s, Fitch and Moody’s – use a rating system ranging from AAA to D (default), B and C.
Ratings give investors an indication of a company’s ability to repay its debt. While assigning a credit rating, the agency considers factors including the country’s economic growth rate, debt levels, spending and tax revenue, and political stability.
The lower a country’s rating, the greater the tendency for investors to charge higher interest rates to buy its debt to offset the higher risk.
Which countries have a AAA rating?
Australia, Denmark, Germany, the Netherlands, Norway, Singapore and a small number of countries with AAA ratings from all three major agencies include Switzerland and Luxembourg.
Many other countries have AAA ratings from one or more agencies, such as the United States and Canada and the European Union.
What are the implications of downgrading the AAA rating?
A downgrade to AAA sends a signal to investors, and the impact varies by country and context.
France lost this rating along with many other countries after the 2008 global financial crisis, which increased borrowing costs but did not alienate lenders.
US borrowing costs have risen since S&P’s decision in 2011, but the US has a significant advantage.
In this regard, Fitch Ratings said on Thursday when it put the US rating on watch for a possible downgrade: “The US dollar is the world’s most important reserve currency, and we believe exchange risks and capital controls will be minimal.”
The share of the U.S. currency, widely used in global business, could suffer from a default, but demand for the dollar could increase in the short term, as it is seen as a safe haven during times of global turmoil.
While Washington may have to pay higher interest rates, the need to hold dollars for trading purposes will continue to drive demand for US bonds.
Fitch has said since 2013 that the US credit rating is likely to be downgraded, but has not yet cut it.
The United States has been rated by Fitch since 1994 and Moody’s since 1949, and they have never downgraded its credit rating.
A potential downgrade, if achieved, would not be unprecedented, given that Standard & Poor’s downgraded Washington in 2011 against the backdrop of the debt ceiling crisis at the time, and could have limited effects on the world’s largest economy. Demand for US Treasuries in markets.
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