THE UNITED STATES’ government bonds have been put on a negative watchlist by ratings agency Standard & Poor’s – a move which sent stock markets around the world falling, amid fears that Europe’s debt crisis could spread worldwide.
S&P yesterday confirmed it was cutting its outlook for the US ten-year Treasury bond from ‘stable’ to ‘negative’ – the first time in seventy years that the firm has tweaked its rating of the benchmark government debt.
That adjustment is tantamount to S&P saying it is preparing to downgrade the rating at some point in the future – with analysts suggesting there was a one-in-three chance that the rating could be downgraded within two years.
“The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national [presidential] elections in 2012,” the Seattle Times quoted.
The timing of the move was a surprise for markets, which have been otherwise preoccupied in dealing with the ongoing European problems – particularly in light of the Finnish election results which could potentially block Portugal from receiving financial aid.
It also comes amid ongoing Budget talks in the US between Democrats and Republicans, centered on whether the national debt ceiling of $14.3 trillion – a limit imposed by law – can be raised. If the parties can’t agree to raising it, they will have to sign up to aggressive budget cutbacks.
The US bond retains its AAA rating for now, however – leading some economists to note that the outlook cut was not a “big deal”.
Rating agency Moody’s put the US on a similar watchlist in 1995 – the last time that the US government reached its debt ceiling – but removed the status within two months when the ceiling had been lifted.
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