US credit rating downgraded from AAA by Fitch

The US was stripped of its top-tier sovereign credit rating by Fitch Ratings, echoing a move made more than a decade ago by S&P.

The credit assessor downgraded the US from AAA, a ranking the nation has held at Fitch since at least 1994, according to data compiled by Bloomberg. The move comes in the wake of major political battles over the nation’s borrowing and repeated standoffs over raising the debt limit. While the most recent legislative impasse was resolved, it remains a potential issue of concern.

“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch said in a statement.

US’ credit rating AA+

Fitch had warned on May 24 that there was a risk of a downgrade. The US is now rated AA+ by Fitch, one step below AAA, and the assessor has a stable outlook on the country.

Moody’s Investors Service currently rates the US sovereign Aaa, its top rating. S&P Global Ratings has it at a score of AA+, one notch below the top tier, having removed its top score back in 2011 on the heels of an earlier debt-ceiling crisis.

US Treasury Secretary Janet Yellen responded to the downgrade, calling it “arbitrary” and “outdated.”

Treasury futures pushed higher in early Asia trading after the announcement. The cash market was closed. The dollar slipped against the euro and the yen.

“I suspect the market will be in two minds about it – at face value, it’s a black mark against the US’s reputation and standing, but equally, if it fuels market nervousness and a risk-off move, it could easily see safe-haven buying of US Treasuries and the dollar,” said David Croy, strategist at Australia and New Zealand Banking Group in Wellington. “It’s finely balanced.”

The yield on 30-year US debt had climbed to the highest in almost nine months Tuesday as the Treasury Department prepares to ramp up issuance of longer-dated securities to fund a widening budget deficit.

On Monday, the Treasury increased its net borrowing estimate for the July-through-September quarter to $1tn, more than some analysts expected and well above the $733bn it had predicted in early May. The Treasury will preview its quarterly financing plans on Wednesday at 8:30 a.m. (ET) in Washington.

Democrats in Congress seized on the downgrade to blame Republicans for holding up a US debt ceiling increase earlier this year.

“This is the result of Republicans’ manufactured default crisis. They’ve repeatedly put the full faith and credit of our nation on the line, and now, they are responsible for the second downgrade in our credit rating,” Democrats on the Ways and Means Committee said in a statement.