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As I recall, when S&P downgraded US debt, treasuries went up in price.
ISTM that investors are well aware of the national debt, the projected $2T annual deficits as far as the eye can see, and the intramural GOP squabbling over the size of the deficit.
Everything may already be priced in. Moody's is late to the party.
"Lagging." Grinning, here. Is that meant to reassure? Or admit to the fact that our debt burden has been astronomical for MANY years? So, we're totally screwed.
This One Beautiful Bill would increase the deficits by $3 trillion through 2034.
Edits: By the end of Clinton’s administration, there was no federal deficit but a surplus! This was accomplished from careful and thoughtful trimming federal budget over the second term of the administration. The came the Bush’s tax cut, Iraq war, and GFC. The rest is history. Now this administration wants another tax cut !
Surely something must be wrong there... only Democratic administrations increase the deficit. Maybe @FD1000 can help us out on that.
I wonder how bad off we would be now had Clinton's tax regime stayed in place. We were actually reducing the deficit at the time. Would Warren Buffet be on welfare?
Ever since the GFC I've found the ratings 'agencies' rather farcical. IMO they're really only useful as a high-level 'sanity check' OPINION on something but their 'ratings' are sliced so narrowly it's pretty hard to fail them.
To wit: Imagine if us in higher-ed used a grading system like they did ... AAA AA+ A BB1 Bbb BB+ etc etc etc. We'd be graduating students with a 40% GPA and considering that a 'pass'.
Keep in mind another rule that only S&P applies - US financials cannot have better credit rating than the US government. So, when US was downgraded to AA+ in 2011, top US financials were also downgraded to AA+ regardless of their own financial situation.
Keep in mind another rule that only S&P applies - US financials cannot have better credit rating than the US government. So, when US was downgraded to AA+ in 2011, top US financials were also downgraded to AA+ regardless of their own financial situation.
The sovereign ceiling rule (that corporate lenders should not have a higher credit rating than the sovereign debt) is applied by many credit rating agencies. This is a rule of thumb, not an ironclad rule, though agencies tend to apply it strictly especially to financial institution lenders.
Credit rating agencies are inclined to apply a de-facto sovereign ceiling rule, wherein the domestic bank ratings are bounded by their sovereign credit rating (Adelino and Ferreira, 2016), even when they maintain higher creditworthiness. ... The rationale for applying the rule is based on economic reasoning, particularly in relation to the need to account for capital controls and the economic stress caused by a sovereign downgrade.
Fitch kept TIAA at AAA in 09/2024 even though it downgraded US to AA+ in 08/2023. So, not all agencies follow this max-sovereign-rating-limit policy.
Moody's also didn't issue a general downgrade for US financials following its downgrade of US to Aa1, nor did Fitch in 2023, as S&P did in 2011.
Among nonfinancials, the only US companies with AAA ratings now are JNJ & MSFT. I have been warning people about structured AAA, AAA, A, etc - literally in hundreds, if not thousands.
Among nonfinancials, the only US companies with AAA ratings now are JNJ & MSFT. I have been warning people about structured AAA, AAA, A, etc - literally in hundreds, if not thousands.
When you say "structured" are you referring to those funds that invest in securitized debt that has been split into tranches that someone assigns a rating too?
Your warnings were certainly on my mind after I exited a securitized fund after about three days.
These are exceptions that prove the rule. The sovereign ceiling rule is a de facto rule, i.e. one generally followed in practice by Fitch, by Moody's and by others. The fact that S&P followed this rule uniformly in the only instance in a single country (the US) where it downgraded the sovereign debt does not prove that this is a rule it will follow without exception.
As the saying goes, past performance does not guarantee future results.
From 2017:
[A]ccording to a report from S&P Global Ratings...
Insurance company ratings are not limited by the rating on their sovereign, but they are affected by the economic and market consequences that typically occur in times of sovereign stress, says S&P in the report. It adds that it is unusual to rate an issuer above the sovereign unless it benefits either from external support or limited exposure to the sovereign domicile. S&P rates 93 insurance companies higher than the sovereign of their domicile, although the majority of these benefit from one of these two factors
Moody's downgrade of U.S. government debt is kind of a non-event. The other two major credit rating agencies already downgraded this debt years ago. However, we should heed Moody's rationale. Here is their rationale, in part:
"Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly."
"Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024. If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade."
"Underpinning the rating is our assumption that the US' institutions and governance will not materially weaken, even if they are tested at times. In particular, we assume that the long-standing checks and balances between the three branches of government and respect for the rule of law will remain broadly unchanged. In addition, we assess that the US has capacity to adjust its fiscal trajectory, even as policy decision-making evolves from one administration to the next."
Comments
is this unpatriotic? verdict pending!
looks like another curve steepening factor if fed cuts happen ~2026.
https://dbrs.morningstar.com/research/451559/morningstar-dbrs-confirms-the-united-states-of-america-at-aaa-stable-trend
Moody's downgrade came after the market close on Friday, so any impact would be seen in Sunday evening futures trading and certainly on Monday.
ISTM that investors are well aware of the national debt, the projected $2T annual deficits as far as the eye can see, and the intramural GOP squabbling over the size of the deficit.
Everything may already be priced in. Moody's is late to the party.
That is rich.
Today, Scott Bessent called Moody’s a ‘lagging indicator’ after U.S. credit downgrade.
https://www.cnbc.com/2025/05/18/scott-bessent-calls-moodys-a-lagging-indicator-after-us-credit-downgrade.html
As in: "It sure took them long enough".
Edits: By the end of Clinton’s administration, there was no federal deficit but a surplus! This was accomplished from careful and thoughtful trimming federal budget over the second term of the administration. The came the Bush’s tax cut, Iraq war, and GFC. The rest is history. Now this administration wants another tax cut !
https://finviz.com/futures.ashx
https://finviz.com/futures.ashx
To wit: Imagine if us in higher-ed used a grading system like they did ... AAA AA+ A BB1 Bbb BB+ etc etc etc. We'd be graduating students with a 40% GPA and considering that a 'pass'.
https://cnbc.com/2025/05/19/us-treasury-yields-moodys-downgrades-us-credit-rating.html
Moody's also didn't issue a general downgrade for US financials following its downgrade of US to Aa1, nor did Fitch in 2023, as S&P did in 2011.
Among nonfinancials, the only US companies with AAA ratings now are JNJ & MSFT. I have been warning people about structured AAA, AAA, A, etc - literally in hundreds, if not thousands.
which corporates have same rating as the U.S. from any agency?
is this # @ all-time high?
AAA JNJ, MSFT
AA+ (same as US) GOOGL, AAPL, Fannie Mae
Fitch
AAA Fannie Mae (go figure that!)
AA+ (same as US) MSFT
Moody's
Aaa JNJ, MSFT, Fannie Mae (!)
Aa1 (same as US) AAPL, XOM, TD, JPM
(If Moody's has changed other ratings, I haven't seen the news)
Wiki (list column sortable) https://www.wikirating.com/list-of-corporations-by-credit-rating/
Your warnings were certainly on my mind after I exited a securitized fund after about three days.
As the saying goes, past performance does not guarantee future results.
From 2017: https://www.commercialriskonline.com/sp-insurance-ratings-affected-sovereign-stress/
https://benzinga.com/economics/macro-economic-events/25/05/45499508/dalio-sees-danger-tom-lee-sees-dip-buy-whos-right-about-the-us-credit-downgrade
The other two major credit rating agencies already downgraded this debt years ago.
However, we should heed Moody's rationale.
Here is their rationale, in part:
"Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits.
During that time, federal spending has increased while tax cuts have reduced government revenues.
As deficits and debt have grown, and interest rates have risen,
interest payments on government debt have increased markedly."
"Without adjustments to taxation and spending, we expect budget flexibility to remain limited,
with mandatory spending, including interest expense, projected to rise to around 78%
of total spending by 2035 from about 73% in 2024. If the 2017 Tax Cuts and Jobs Act is extended,
which is our base case, it will add around $4 trillion to the federal fiscal primary
(excluding interest payments) deficit over the next decade."
"Underpinning the rating is our assumption that the US' institutions and governance will not materially weaken,
even if they are tested at times. In particular, we assume that the long-standing checks and balances
between the three branches of government and respect for the rule of law will remain broadly unchanged. In addition, we assess that the US has capacity to adjust its fiscal trajectory,
even as policy decision-making evolves from one administration to the next."
yogibearbull....link is from 2021.
i assume these agencies make huge $ due to corporate ratings not being static.