Moody's Signals Risk of Negative Outlook for U.S. Rating

Discussion in 'Wall St. News' started by Dogfish, Jan 28, 2011.

  1. Dogfish


    <b>Moody's Signals Risk of Negative Outlook for U.S. Rating</b>

    Moody’s Investors Service said its time frame for possibly placing a negative outlook on the Aaa rating of U.S. Treasury bonds is shortening as the country’s deficit widens.

    The outcome of the November elections, the extension of tax cuts and the chance that Congress will not address deficit reduction have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt, the credit-ratings company said today in a report.

    “Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising,” wrote Steven Hess, a senior credit officer in New York and the author of the report. The rating remains stable, according to the report.

    “Because of the financial crisis and events following the financial crisis, the trajectory is worse than it was before,” Hess said in a telephone interview.

    Moody’s said it expected there would be “constructive efforts” to reduce the budget deficit and control entitlement spending. It predicted long-term Treasury yields would rise toward 5 percent without surpassing that level.

    The amount of marketable U.S. debt outstanding increased by 22 percent to $8.86 trillion in 2010.

    <b>Highest Debt Ratio</b>

    Spending to address the financial crisis and its fallout, including assistance to financial institutions, caused a sharp increase in the U.S. deficit and “shortened the horizon for possible rating change,” Moody’s said. U.S. debt ratios are high, compared with other top-rated nations, Moody’s said.

    “In addition, the other large Aaa countries have plans to reduce deficits substantially over the coming few years, indicating that this trend may continue,” Hess said.

    <b>The U.S. has the highest ratio of government debt to revenue of any Aaa rated country, Moody’s said. The ratio, at 426 percent, is more than double that of Germany, France and the U.K. and more than four times higher than Australia, Sweden and Denmark, according to Moody’s.</b>

    Earlier today, Standard & Poor’s cut Japan’s credit rating for the first time in nine years, lowering it to AA- from AA. The company said persistent deflation and political gridlock were undermining efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

    The ratings firms also have reduced Europe’s so-called peripheral countries on rising deficits and slumping growth.

    Greece, Portugal, Spain

    Fitch Ratings cut Greece to BB+ on Jan. 14, following S&P and Moody’s in lowering the country to junk status. Moody’s began reviewing Portugal and Spain in December.

    Credit-default swaps on U.S. Treasuries climbed for a fourth consecutive day, rising 1.5 basis points to 51.57 basis points, according to data provider CMA. That means it would cost the equivalent of $51,570 a year to protect $10 million of debt against default for five years.

    That compares with 59.8 basis points for debt issued by Germany, 83.1 for Japan, and 897.3 for Greek bonds, the data show.

    The U.S. Treasury Department said today it will reduce its borrowing on behalf of the Federal Reserve to $5 billion from $200 billion because of concerns about the federal debt limit. <b>The administration of President Barack Obama and Congress are debating whether to raise the limit as the government approaches the current ceiling of $14.29 trillion, which the Treasury estimates will be reached between March 31 and May 16.</b>

    Focus on the debt ceiling, which was increased a year ago, has risen since Republicans won control of the House of Representatives in November with pledges to challenge the Obama administration on spending. GOP lawmakers have told the president and Democratic legislators that they will insist on specific cuts as a condition of raising the U.S. debt limit.

    To contact the reporter on this story: Christine Richard in New York at

    To contact the editor responsible for this story: Alan Goldstein at
  2. Dogfish


    The question is whether the muni bond crisis will be America's Greece and focus contagion will spread through to the core sovereign issues getting the ratings agencies to sharpen their pencils.
  3. Locutus


    Well it's a self-fulfilling prophecy, just like with the EU peripherals.

    As long as nobody bothers to ask how feasible this all is, countries can keep borrowing at ridiculous rates and they will be able to stay afloat without much effort really. I have no doubt that if interest rates don't rise and the economy doesn't worsen (i.e. stays crap but not catastrophic), the US can continue on its current course and had no attention been called to it the same way no attention has been called to it for the past decade, Greece and Ireland would have experienced no problems at all.

    However, once a critical mass of people start to question "well what happens if anything goes even slightly wrong", things will go wrong. This is exactly what happened with the financial crisis as well. Had nobody bothered to care about the actual value of these loans and mortgages everything would have gone along perfectly fine (as it had been for years).

    All you can really bet on at this point is whether people will start to look at the downside or not. When they do, fasten your seatbelts... Given statements such as these from the rating agencies I think the willingness to reasses the state of affairs will become greater in the near term.
  4. sprstpd


    The real question is who the hell cares about Moodys. They have proven to be an ineffective organization.
  5. cvds16


    if even moody's says this, it sure means something to me ... they are the most unlikely to do so ...
  6. Yep. Exactly what happens in these financial crises every time.
    As for this notice, someone at Moody's was long gold going into yesterday, and needed to unload his stash. Or knew someone at GS that needed to lighten up.
  7. Absolutely. I would include all ratings agencies in this. They are ALWAYS behind the curve. Ratings agencies tell us what we already knew months or sometimes YEARS ago...

    Completely useless and irrelevant.
  8. I am tired of the WHOLE media bullsh!t game! The ratings for the US, Japan and Europe should rating at all!!! How can there be a rating? What does the "rating" measure? The ability of a country to pay off its debt? How can the US, Japan and Europe have ratings? All three are printing money...the "debt" of all three has elements of fabricated money...not just money borrowed, but money printed out of thin air! Does the "rating" measure a country's ability to print money? If so, then of what value is it? Of course the US, Japan and Europe can print worthless currency to "pay off debt." The bigger question is, "Can the US, Japan and Europe pay off debt with a currency that is actually worth something?" At present the system is "jacked up" to the point where peoples' lives depend upon "solid currency" - and the US, Japan and Europe are "paying off" in worthless currency.