NYT "US Credit Rating Downgrade Will Not Curb Government Borrowing"

Global credit rating agency Fitch downgraded the United States' national credit rating, but the prevailing view is that it will not significantly affect the US government's borrowing capacity, the New York Times (NYT) reported on the 2nd (local time).

Wells Fargo received feedback from clients the day before that demand for purchasing US Treasury bonds would not significantly shrink after Fitch downgraded the US credit rating from 'AAA' to 'AA+'. Fitch cited the deterioration of the US fiscal situation, increasing national debt, and governance issues as reasons for the downgrade.

Peter Chir, Head of Macro Strategy at Academy Securities, also described the credit rating downgrade as "essentially a symbolic move."

The NYT reported that after Standard & Poor's (S&P) downgraded the US credit rating from 'AAA' to 'AA+' in 2011, Fitch has now followed suit after 12 years, meaning US Treasury bonds will no longer be considered top-tier bonds like those of Germany, Australia, or Singapore. However, experts foresee a low likelihood that this downgrade will limit the US's borrowing ability.

The NYT explained, "The US Treasury market is the world's largest bond market, influencing global borrowing costs and supported by a diverse range of investors," adding, "The US credit rating remains among the highest, bolstered by a strong and diversified economy and its status as the issuer of the world's reserve currency."

Wall Street analysts widely agreed that the impact of the US credit rating downgrade would be limited. Jamie Dimon, CEO of JPMorgan Chase, called Fitch's downgrade "ridiculous" in an interview with economic media CNBC on the same day. He emphasized the safety of US Treasury bonds, saying the downgrade "doesn't matter much. The market decides."

US Treasury yields rose, with the 10-year yield reaching 4.155% at 3:58 AM Korean time, up 79 basis points from the previous trading day. The rise in yields is due to continued selling of US Treasuries. The NYT noted, "Experts believe this is more related to expectations of increased government borrowing than the credit rating downgrade itself," adding, "As a result, yields are rising, and corporate borrowing costs are also increasing."

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