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U.S. Possible Rating Downgrade in 2013 without Budget Deal

Posted by Joseph Trevisani on May 20, 2013 1:18:00 PM

Moody's Investor Services, the credit rating agency said today that the Federal government must address debt levels that are set to rise sharply later in the decade on social service costs or its risks a downgrade of its credit rating.

The Congressional Budget Office (CBO) has forecast a $642 billion deficit this year, the first year under the Obama Administration that the deficit will be less than $1 trillion and predicts that it will fall to $378 billion in 2015.

The CBO predicts that the U.S. debt to GDP ratio will drop to 71% by 2018 but will rise after that unless various entitlement programs are reformed to account for the aging U.S. population.

Moody’s still has US debt at its top Aaa rating. In August 2011 S&P, the world’s largest rating agency, reduced the U.S. rating one grade to AA+ from AAA. Yields on 10-year Treasuries dropped in the weeks following the downgrade to a then record 1.67% rather than rising as might have been expected.  The yield is 1.97% today.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

Chart: Bloomberg

ScreenHunter 1189 May. 20 13.17

 

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