- The bond returns have increased in the long run after Moodyz It has become the last credit agency to remove the United States of the highest levels of borrowers. The reduction of US debt in 2011 caused the cabinet bond gathering, where investors sought safety in government bonds. However, the situation today appears to be different, with fears of the increased deficit and tax cuts waving on the horizon.
Moodyz cut From the debts of the United States on Friday did not surprise many Wall Street Or Washington: Even Treasury Secretary Scott Payet tried to reduce the credit agency’s step as a late indicator. 14 years agoWhen Standard & Poor’s became the first credit agency to reduce the American credit rating – and pushed investors in contradictory cabinet.
Since Friday, however, bond markets have It was a reaction More than expected, with a slight sale in long treasury bonds on Monday. Long -term yield, which rises like the price of bonds, It remains high Amid concerns about the tax discounts in the Republican PartyBig, beautiful“Bill increases already a federal deficit.
This legislation, which is the budget office of Congress estimated It will add $ 4.5 trillion to the deficit until 2034, proved to be the final straw of Moody’s. The credit agency had previously kept the United States in the best degrees of borrowers since it issued government bond categories for the first time in 1919.
These categories, which means that Republican financial falcons are likely to obtain more saying, as the draft law is heading to the House of Representatives Hall and at the end of the Senate.
“There is one thing that stands out, and that is that at this stage there are no signs of any restrictions on a serious deficit,” Jim Reed, the head of international and objective total research in German bankHe wrote in a memo with colleagues on Monday morning.
It is not a secret that the national religion is on an unnecessary road, especially after the luxurious spending from the first Trump and Biden departments. According to the Congress Budget Office, the federal deficit for the fiscal year 2025 is 1.9 trillion dollarsOr 6.2 % of gross domestic product, the deepest decrease in the country’s history outside the war or recession. My mood, and at the same time, Expected The debts that the public keeps to calculate 134 % of US GDP by 2035, compared to 98 % today.
“The great unknown is when all the tips end,” said Reed in a separate memo. “Our point of view is that the liberation day has most likely brought this account forward. The expensive US privilege – is the ability to borrow well less than fair value – gradually erodes.”
In other words, due to the state’s status as a reserve currency in the world and its confidence from investors that the US government will always pay its bills, the United States borrows at much better rates than its basic money that it usually allows. Experts usually refer to this case in the name of “”Excessive privilege“
Deutsche Bank estimates that this capacity has shaved about 70 basis points of US borrowing costs. However, this proliferation may lead to tightening, if political instability or the increasing deficit makes investors doubt the cabinet reputation as the final safe haven. This would press up Useful interest rates For mortgages, small business loans, and other common types of borrowing throughout the economy.
Debt ceiling approvals
However, the effect of reducing credit on the American debt was not always clear.
In 2011, Standard & Poor’s was the first of the three major credit agencies that are rating after a bitter confrontation on DebtWhich allows the American government to increase its borrowing to finance the spending that has already been allocated by Congress.
Once exercise, the debt roof descending became a suitable political weapon. This is because if an agreement is not reached to lift the threshold at the end, the Treasury will not be able Pay payments For creditors on time. The global markets are likely to go to Haywire, at least for a moment.
In 2011, 11Y-Agreement, avoid such a scenario, but Wall Street had to calculate a new fact.
“It was definitely destroying the land for many investors,” said Gennadi Goldberg, head of the US price strategy at TD Securities. luck“Because no investor has ever considered the US Treasury debts fraught with non -payment.”
However, in the aftermath of the crisis, the bonds rose amid the sale of the stock market in the so -called “Journey to Quality”.
“People bought cabinet bonds as a risk -free origin due to uncertainty about the treasury as a risk -free origin,” Goldberg said. “This looks circular, exaggerated and insane, but this is exactly what happened. But you also had very wild prices. You have moved 30, 40 and 50 basis points per day.”
In 2023, Fitch also reduced US debt after another debt roof KerufleBut the movements in the treasury market were more organized. The last MOODY pieces are not different from the previous two, not only because now it is now plans to spend on the republican administration that is focused on.
Instead of the motivation behind the roof of the debt, this reduction is focused on the borrowing scale. Even with the height of the deficit, America will not fail to its debts. luck. The government can always print more money to pay its bills, but this poses great risks of higher inflation and the weakest dollar, which reduces the value of payments to bond holders in real terms.
“I think what MOODY is doing is the classification of investment more than the virtual risk classification,” said Philseld, who runs the current investment funds and a series of hedge funds.
Technically, though, the MOODY reduction only reflects the risk of not paying US debt, rather than calculating inflation capacity on DENT returns. mail Monday.
He said differently, for those who are interested in the value of their money, “Bridgowter founder wrote,” The risks of US government debt are greater than the classification agencies they transfer. “
This story was originally shown on Fortune.com
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