On Tuesday, 1st August, Fitch ratings shocked market participants and the business community by handing the US its second-ever credit rating downgrade in its history.
The credit rating agency cited an “expected fiscal deterioration over the next three years, a high and growing general government debt burden” and an erosion of fiscal governance, evident in “repeated debt-limit standoffs and last-minute resolutions”.
Fitch’s reasoning is similar to Standard & Poor (S&P) rating agency’s explanation for initially downgrading the US credit rating in 2011, spotlighting increased concerns over US’ fiscal position.
Of the three top rating agencies, only Moodys investor service still rates the US “AAA”. Both S&P and Fitch have downgraded US treasuries to AA+ (more on this later).
Following Fitch’s announcement to strip the US of its “AAA” status, its bond market fell the next day, reaching fresh 2023 lows as the yields rose across maturities. Global equities markets also