Fitch ratings. The rating agency has lowered the ‘rating’ of the United States to downgrade its note from triple ‘AAA’ -the highest- to ‘AA+’, after having it since May in ‘negative observation’. The decision has generated astonishment among investors, who have responded with sales and have led the world stock markets to fall back on Wednesday. Although these falls have nothing to do with the declines experienced when Standard & Poor’s fell the highest note to the US country just twelve years ago.
With differences in context, Bankinter analysts say that the effects of this measure have a “limited scope.” “It seems more serious than it really is because the United States already lost its AAA to S&P in 2011 after the financial crisis and it is inevitable to have the feeling that Fitch is a bit late now”, precisely the director of Bankinter’s analysis department, Ramón forced. This vision is also shared by the Swiss manager Julius Baer, from which they highlight that US Treasury bonds “continue to be one of the most liquid and safe assets, at least in terms of counterparty risk”.
For the moment, the uncertainty is eliminated with the specification of a stable outlook. The fear is that Moody’s – the other of the three big rating agencies worldwide – will follow in the footsteps of its counterparts and undertake a note reduction in its next review. Losing all the honors will have more adverse consequences for the United States, which will no longer be among the elite of the most creditworthy States, among which are Germany, the Netherlands, Norway or Australia. The sticking point lies in the trust placed in Republicans and Democrats to reach agreements on fiscal matters.
The episodes of tension experienced on more than one occasion in recent years during the negotiations on the debt ceiling, that is, the limit of money that the North American State can borrow, have deteriorated government standards in the eyes of Fitch, firm which directly points to the repeated clashes as a reason that has increased doubts about the country’s fiscal management. To this must be added the staggered rise in debt. If in 2011, when an ‘in extremis’ agreement was reached in the US Congress to increase the ceiling to 14 trillion dollars, now that figure has been published and after successive increases it already slightly exceeds 31 trillion dollars.
In terms of debt to GDP ratio, this exceeds 125% in the case of the US economy. To put it in context, the leverage of Germany does not exceed 70%, while that of the Netherlands does not reach 50% at the end of the first quarter of 2023. At the national level, in Spain public debt is slightly above 112 %, percentages that have increased gradually in the last twelve years. Western economies have been conditioned by the pandemic and, before that, by the sovereign debt crisis that devastated the euro regions, which has caused an increase in deficits and debt that the economies are still resisting.
It should be noted that one of the main differences between 2011 and now lies in the timing of the economic cycle. If by then the single currency region was heading towards a crisis unprecedented in the history of the euro, the United States was seeking to heal the scars caused by Lehman Brothers. In this sense, banks and central banks had already loosened the trigger on interest rates and were in bearish territory, while right now they are still in an expansive cycle.
With the reference money rate at 5.5% in the United States and 4.25% in the euro area, interest on the ten-year bond has risen gradually in recent months in both regions, although it has reacted somewhat mixed to this news. In the United States it rebounded above 4.1%, quite the opposite of the German ‘bund’, which has experienced slight falls to 2.5%. In the midst of the discomfort that this measure has generated within the White House and the fear that the high indebtedness will generate turbulence in the markets with the 2024 presidential elections in the background, now the pressure falls on Moody’s.
