Moody's Cuts USA's Aaa Rating Outlook To 'Negative'; Treasury Dept "Disagrees"
(I guess Moody’s drew the short straw this time and on a Friday after the best 2 weeks in the markets for 2 years….it really doesn’t mean much being as the $ is reserve currency etc but after all the negative data you do this now?….and of course J-J-Janet and the ‘digital’ inkjets don’t agree)
Who could have seen that coming?
After a disastrous 30Y bond auction this week, a collapse in Treasury market liquidity, and an accelerating rise in the market's perception of the United States' credit risk, Moody's has just cut its outlook on US credit ratings to negative from stable. The key driver of the outlook change to negative is Moody's assessment that the downside risks to the US' fiscal strength have increased and may no longer be fully offset by the sovereign's unique credit strengths.
In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability.
Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.
Moody's does affirm the Aaa rating:
The affirmation of the Aaa ratings reflects Moody's view that the US' formidable credit strengths continue to preserve the sovereign's credit profile.
-
First, Moody's expects the US to retain its exceptional economic strength. Further positive growth surprises over the medium term could at least slow the deterioration in debt affordability.
-
Second, the US' institutional and governance strength is also very high, supported in particular by monetary and macroeconomic policy effectiveness. While the adjustment of the US economy and financial sector to higher-for-longer interest rates is underway, policymakers have facilitated the transition through transparent and effective policy.
-
Finally, the unique and central roles of the US dollar and Treasury bond market in the global financial system provide extraordinary funding capacity and significantly reduce the risk of a sudden spiraling of funding costs, which is particularly relevant in the context of high debt levels and weakening debt affordability.
The US' long-term local- and foreign-currency country ceilings remain unchanged at Aaa.. The Aaa local-currency ceiling reflects a small government footprint in the economy, relatively predictable and reliable institutions, very low external imbalances and moderate political risks, all of which reduce the risks posed to non-government issuers by government actions or shocks that would commonly affect the government and the private sector. The foreign-currency ceiling at Aaa reflects the country's strong policy effectiveness and open capital account which reduce transfer and convertibility risks to minimal levels.
The market - late on a Friday - pushed yields on the 2Y and 5Y Treasyr notes to fresh new highs for the day.
Five minutes later, US Deputy Treasury Secretary Wally Adeyemo comments in emailed statement to Bloomberg:
“While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset” “The Biden administration has demonstrated its commitment to fiscal sustainability,(Bwahahaha)including through the more than $1 trillion in deficit reduction included in the June debt-limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade”
Still, not a great look as she "negotiates" with the Chinese. (She ain’t ‘negotiating’ nuffin-has zero credibility and belongs in a rest home)
https://www.zerohedge.com/political/moodys-cuts-usas-aaa-rating-outlook-negative
Icymi last weeks (Nov 3) ~~failed~~ FIFY shotgun wedding bank payout from the FDIC DIP fund (Iowa Trust & Savings Bank, Emmetsburg, Iowa, Assumes All of the Deposits of Citizens Bank, Sac City, Iowa) was because the commercial trucking loans from this bank failed and it had something like $21m in outstanding loans so $14.8m of that failed and that was its commercial trucking loan portfolio.
https://www.fdic.gov/news/press-releases/2023/pr23091.html