Moody’s says U.S. faces loss of Aaa without budget deal in 2013

Coin Flip

The U.S.’s Aaa rating with negative outlook would only be extended beyond 2013 if a “‘fiscal cliff’ actually materialized,” Moody’s said today in the statement. “Moody’s would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.”

For investors and policy makers, predicting the consequences of a rating change by S&P or Moody’s -- the dominant issuers of debt scores -- may be little different from flipping a coin.

Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled in June by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as 38 years. The rates moved in the opposite direction 47 percent of the time for Moody’s and for S&P. The data measured yields after a month relative to U.S. Treasury debt, the global benchmark.

Yields Rise

“Everybody knows that if we don’t get our house in order, we’re in trouble,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “If you get downgraded twice, you’re certainly not going to lend to that government at a lower rate.”

The 10-year yield rose four basis points, or 0.04 percentage point, to 1.69 percent at 10:56 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 1.625 percent note due in August 2022 fell 10/32, or $3.13 per $1,000 face amount, to 99 12/32. The yield fell to a record low of 1.379 percent on July 25.

The U.S. dollar declined to its lowest level in almost four months versus the euro, weakening 0.7 percent to $1.2847. The dollar has rallied 11 percent against the euro since the S&P downgrade in August 2011.

Fitch Ratings assigns the U.S. its top AAA ranking with a negative outlook.

Bloomberg News

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