On Wednesday, Moody’s decided to “place the Aaa bond rating of the government of the United States on review for a possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis. In conjunction, (the rating agency) placed on downgrade review the Aaa ratings of financial institutions directly linked to the US government.”
Moody’s is the first of the big-three rating agencies to place the United States on review for a downgrade. Nevertheless, “there is a small but rising risk of a short-lived default,” Moody’s said, adding that it considers the probability of a default to be low but no longer minimal.
If lowered, the rating would most likely be somewhere in the Aa range, the rating agency said.
– Jeffrey Goldstein, the U.S. Treasury’s under secretary for domestic finance, said in a statement that Moody’s assessment “is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country’s obligations and agree upon a substantial deficit-reduction package.”
– “They’ve been threatening this for a while and they’re just increasing the drumbeat. It’s time for our elected officials to do what they were elected to do. This was a warning shot across the bow. It means ‘deer in the headlights’ for the Treasury market. People don’t know what to do, especially in this market, where safety is a top concern. If you can’t hide in Treasuries, you don’t know where to hide. It’s just adding to uncertainty” declared Ward McCarthy, Chief financial economist for Jefferies & Co. in New York.