The U.S.’s AAA credit-ranking was affirmed by Fitch Ratings, which maintained its stable outlook, while citing the nation’s unparalleled financing flexibility and economic recovery.
Fitch had upgraded the outlook from negative in March, joining Moody’s Investors Service and Standard & Poor’s in assigning stable views on the world’s largest economy. S&P’s dropping of its rating to AA+ in 2011 contributed to an equity rout that erased about $6.1 trillion from global stocks and sent investors to the safety of U.S. government debt. Moody’s reiterated its stable outlook on Wednesday.
Three years after the historic downgrade, the outlooks are citing stronger U.S. growth and a U.S. budget projected to fall to 2.6 percent of gross domestic product in 2015 from 2.9 percent this year, according to economists surveyed by Bloomberg, reaching the lowest level since 2007.
Investors routinely ignore ratings companies’ decisions. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and S&P suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields down to records.
The benchmark 10-year Treasury note yield fell four basis points to 2.57 percent as of 4:18 p.m. in New York, according to Bloomberg Bond Trader prices.
The jointly owned subsidiary of Paris-based Fimalac SA and New York-based Hearst Corp., Fitch is registered with the European Securities and Markets Authority, a regulator that oversees the industry. Fitch agreed to disclose a statement about the U.S. rating today as part of European rules.
The U.S. budget is projected to fall to 2.6 percent of gross domestic product in 2015, down from 9.8 percent of GDP in 2009 in the midst of the financial crisis, the widest in records dating back to 1974. Forecasters see the world’s largest economy expanding 3 percent next year, the fastest pace in a decade, a Bloomberg survey showed.
The U.S. budget deficit narrowed 22 percent in the first 11 months of the fiscal year as accelerating economic growth boosted tax receipts, Treasury Department figures showed on Sept 11. The budget gap as a share of the economy is on a path to shrink this year, as falling unemployment and swelling corporate profits help revenues grow faster than outlays, the Congressional Budget Office said on Aug. 27.
The $589.2 billion shortfall from October through August compared with a $755.3 billion gap in the same period a year earlier, the Treasury said.
When S&P stripped America of its top grade, it cited a political stalemate involving the debt limit and a lack of a plan to reduce federal deficits. The government in 2013 endured its first partial shutdown in 17 years after Congress failed to break a partisan deadlock on the budget.
© Copyright 2021 Bloomberg News. All rights reserved.