American credit is no longer “full score”! Moody's downgrades its long-term sovereign credit rating

The Zhitong Finance App learned that Moody's announced on Friday that it will downgrade America's long-term sovereign credit rating by one level from the highest Aaa. This means that US sovereign debt has been removed from the “top credit” category by all three rating agencies.

This downgrade is another major step after Standard & Poor's first downgraded the US rating from AAA more than 10 years ago, and Fitch Ratings also downgraded the US credit rating from AAA to AA+ in 2023. As a result of Moody's's action, the three major rating agencies have downgraded the credit ratings of the United States.

Moody's stated in a statement that the downgrade “reflects the continued rise in the US government debt and interest payment ratio over the past 10 years, and is already significantly higher than other sovereign countries at the same level.” The company specifically emphasized that many US administrations and Congress failed to take effective countermeasures to control deficit and debt growth.

Moody's said, “We don't think the fiscal plan currently being discussed is likely to result in substantial mandatory spending cuts or a reduction in long-term deficits. As spending on welfare such as social security and health insurance rises over the next ten years, and fiscal revenue remains relatively stable, the US government will face greater pressure on the budget deficit.” The agency anticipates that large and continuing fiscal deficits will drive the US debt and interest burden to rise further. Compared to America's previous fiscal performance and other high-rated countries, the US fiscal situation is likely to continue to deteriorate.

Despite this, Moody's also raised the outlook for US credit ratings from “negative” to “stable,” on the grounds that the US economic growth potential is strong, the US dollar is still the world's dominant reserve currency, and although America's institutional and governance capabilities may be tested, there will be no “substantial weakening” overall.

After the news of the downgrade was announced, the market reacted quickly. The 10-year US Treasury yield rose rapidly from 4.44% to 4.48%, indicating that investors' concerns about US credit risk have increased.