US AAA credit ratings at risk of downgrade, Fitch says

  • Ratings agency Fitch put U.S. credit watch for possible downgrade on Wednesday.
  • Fitch has expressed concerns about political partisanship amid talks on raising the debt ceiling.
  • The United States could run out of money to pay its bills by June 1, according to Treasury Secretary Yellen.

The U.S. debt ceiling standoff has reached a crucial milestone – the country’s prized AAA credit rating is under threat, which could impact the price of billions of dollars of Treasury debt.

On Wednesday, major ratings agency Fitch put U.S. credit watch for possible downgrade, citing political “guile” in talks over raising the debt ceiling.

This means that the United States’ credit rating – which is now AAA, signaling that government-issued Treasuries are the “safest” investment – could be lowered if the debt limit was not raised before the so-called “X date”, when the country runs out of money to pay its bills.

Treasury Secretary Janet Yellen said the X date was June 1.

“The Rating Watch Negative reflects heightened political partisanship that prevents reaching a resolution to raise or suspend the debt ceiling despite the rapid approach of the X date,” Fitch said in a statement.

The rating agency expects a resolution of the debt ceiling crisis before date X. However, the risk that the debt ceiling will not be raised has also increased.

“We believe the risks have increased that the debt ceiling will not be raised or suspended by date X, and therefore the government may begin to miss payments on some of its obligations,” Fitch said.

Fitch also raised concerns about governance issues in the context of the debt ceiling crisis.

“Failure to reach an agreement to increase or suspend the debt limit by date X would be a negative signal of broader governance and the willingness of the United States to meet its obligations in a timely manner, which would be unlikely to be consistent with an ‘AAA’ rating,” according to Fitch.

A rating downgrade negatively affects the creditworthiness of a debt issuer – in this case, the United States – and could increase its cost of borrowing.

Immediately after Fitch’s announcement, US Treasuries maturing in early June soared 7%, according to Reuters.

And nervous investors are already nervous as Date X approaches. On Wednesday, US stocks fell as talks dragged on. The S&P 500 closed down 0.73% at 4,115.24, while the Dow Jones Industrial Average ended down 0.77% at 32,799.92.


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