Economic News | Moodys downgrades U.S. Debt Rating

[Healing]

I assume big investors are still excited about Bigly tax cuts and killing off the poor

Trouble is, “killing off the poor” = no work force and a terrible market for consumer goods = shit economic environment = lower corporate valuations. Sorry, but robots and AI aren’t ready to manage every harvest, build every luxury penthouse, respond to a code blue, fix your water main, curate your landscaping, clean hotel rooms, etc.

 

[altmin]

Moody’s strips US of top-notch triple-A credit rating

Agency warns of rising debt and deficit payments

www.ft.com

 

[nycfan]

 

[nycfan]

“Moody’s Ratings downgraded the United States’ debt on Friday, stripping the country of its last perfect credit rating.

The move could rattle financial markets and push up interest rates, potentially creating an additional financial burden for Americans already struggling with tariffs and inflation.

Of the three major credit rating agencies, Moody’s was the lone holdout, maintaining its outstanding rating of AAA for US debt. Moody’s held a perfect credit rating for the United States since 1917.

It now ranks US creditworthiness one notch below that, at Aa1, joining Fitch Ratings and S&P, which lowered their credit ratings for US debt in 2023 and 2011, respectively. …”

 

[nycfan]

“Moody’s Ratings downgraded the United States’ debt on Friday, stripping the country of its last perfect credit rating.

The move could rattle financial markets and push up interest rates, potentially creating an additional financial burden for Americans already struggling with tariffs and inflation.

Of the three major credit rating agencies, Moody’s was the lone holdout, maintaining its outstanding rating of AAA for US debt. Moody’s held a perfect credit rating for the United States since 1917.

It now ranks US creditworthiness one notch below that, at Aa1, joining Fitch Ratings and S&P, which lowered their credit ratings for US debt in 2023 and 2011, respectively. …”

 

[heelinhell]

“Moody’s Ratings downgraded the United States’ debt on Friday, stripping the country of its last perfect credit rating.

The move could rattle financial markets and push up interest rates, potentially creating an additional financial burden for Americans already struggling with tariffs and inflation.

Of the three major credit rating agencies, Moody’s was the lone holdout, maintaining its outstanding rating of AAA for US debt. Moody’s held a perfect credit rating for the United States since 1917.

It now ranks US creditworthiness one notch below that, at Aa1, joining Fitch Ratings and S&P, which lowered their credit ratings for US debt in 2023 and 2011, respectively. …”

It will be interesting to see how investors and traders will react this week.

a flight to safety once again ? In this chaotic environment I continue to believe cash is king...

 

[ChapelHillSooner]

It will be interesting to see how investors and traders will react this week.

a flight to safety once again ? In this chaotic environment I continue to believe cash is king...

I believed that too after moving most of my 401k to cash in February.

I relented two days ago. Thought that I at least bought cheaper than I sold.

But f’ me on my timing.

 

[superrific]

It will be interesting to see how investors and traders will react this week.

a flight to safety once again ? In this chaotic environment I continue to believe cash is king...

I doubt they will react at all. Nobody cares about Moody's rating of US debt. Credit rating agencies like Moody's provide a valuable service when rating corporate debt. That's because they have a gigantic database will millions of bond issues, financial and other information about the issuers, and the results of the bond offerings. That data is proprietary. They also do simulations where they stress test bond issues against a number of different macro situations, industry developments, etc.

But what does Moody's know about the US government that we don't? Nothing. All the finances for the US government are already public. There are few if any comparable sovereign issues for comparison, and even if there were, that information would be public as well. So basically Moody's, when it comes to sovereign debt, is offering a formula. There's no reason to believe its formula over a hedge fund's.

Not coincidentally, Moody's track record with sovereign debt -- this is true of all the CRAs -- is poor. They consistently underrate sovereign debt, almost to a comical degree at times.

I don't think many bond traders pay much attention to CRAs even for corporate issues. They have their own credit models that they trust more. The CRA ratings are often to determine what pension funds are allowed to invest in, but I would be shocked if the states didn't allow fiduciaries to buy US debt regardless of its credit rating. So I don't know how relevant Moody's actually is in today's economy. I'm confident that their ratings of US debt are more or less meaningless -- as demonstrated by the market shrug last couple of downgrades. Like, the market didn't move at all in response.

 

[nycfan]

It will be interesting to see how investors and traders will react this week.

a flight to safety once again ? In this chaotic environment I continue to believe cash is king...

The aftermarket reaction was not positive, but people have the weekend to consider what it means and fine ways to convince themselves it’s fine.

 

[ChapelHillSooner]

I doubt they will react at all. Nobody cares about Moody's rating of US debt. Credit rating agencies like Moody's provide a valuable service when rating corporate debt. That's because they have a gigantic database will millions of bond issues, financial and other information about the issuers, and the results of the bond offerings. That data is proprietary. They also do simulations where they stress test bond issues against a number of different macro situations, industry developments, etc.

But what does Moody's know about the US government that we don't? Nothing. All the finances for the US government are already public. There are few if any comparable sovereign issues for comparison, and even if there were, that information would be public as well. So basically Moody's, when it comes to sovereign debt, is offering a formula. There's no reason to believe its formula over a hedge fund's.

Not coincidentally, Moody's track record with sovereign debt -- this is true of all the CRAs -- is poor. They consistently underrate sovereign debt, almost to a comical degree at times.

I don't think many bond traders pay much attention to CRAs even for corporate issues. They have their own credit models that they trust more. The CRA ratings are often to determine what pension funds are allowed to invest in, but I would be shocked if the states didn't allow fiduciaries to buy US debt regardless of its credit rating. So I don't know how relevant Moody's actually is in today's economy. I'm confident that their ratings of US debt are more or less meaningless -- as demonstrated by the market shrug last couple of downgrades. Like, the market didn't move at all in response.

But aren’t there stipulations on what some pensions can invest in? Do any require AAA and does it make a difference that it is now 3/3 meaning they can no longer argue US debt is AAA since it is now 0/3?

 

[superrific]

But aren’t there stipulations on what some pensions can invest in? Do any require AAA and does it make a difference that it is now 3/3 meaning they can no longer argue US debt is AAA since it is now 0/3?

1. It used to be that AAA was required in pretty much most fiduciary contexts. Then after 2008, states and associations began loosening the coupling to AAA ratings. I don't know how far they got or whether it was completed.

I would be shocked if there were states requiring AAA for US debt. The statute or regulation could read something like, "a fiduciary may only invest in a) debt securities rated AAA; b) US Treasury Debt; c) [ . . . ]." It could be state regulators who issue regs on this issue. Maybe the courts interpret AAA to include US Treasury debt. But I really have trouble believing that fiduciaries will not be able to hold US debt.

First: it would be the most idiotic of policies. Everyone knows that everyone holds Treasuries. If suddenly every fiduciary had to unload the treasury debt, it would cause a fire sale, and the last thing a regulator wants to do is force companies to panic sell into a fire sale. Second , if I'm wrong and there will be mass unloading of Treasuries, it would be a much bigger story right now. It's not exactly a debt default, but a panic sale on treasuries would induce chaos.