ALERT! Moody's Places US Government Debt AAA Rating on Review for Possible Debt Downgrade

http://www.stockmarketfunding.com Alert! Moody's Places US Government Debt AAA Rating on Review for Possible Debt Downgrade FROM (AAA Rating)

Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.

In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.

RATIONALE FOR REVIEW

The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.

Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range.

The specific rating that would be assigned at the conclusion of the review once such a default is cured would depend on (1) the speed with which the default is cured; (2) an assessment of the likely effect on future borrowing costs; and (3) whether there is a change in process for raising the debt limit that would preclude another default. A return to a Aaa rating would be unlikely in the near term, particularly if there were no progress on the third consideration.

While the debt limit has been raised numerous times in the past, and sometimes the issue has been contentious, bond interest and principal have always been paid on time. If the debt limit is raised again and a default avoided, the Aaa rating would likely be confirmed. However, the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction. To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years.

Moody's does not take a position on what measures should be included in any deficit reduction package. Instead, it is the resultant deficit and debt trajectories that are relevant to the rating and its outlook.

RELATED ISSUES

In addition to the financial institutions directly linked to the US government, Moody's has also placed on review for possible downgrade pre-refunded municipal bonds (which are invested in government or related securities), certain housing bonds that are supported or guaranteed by the US government, and other municipal ratings that are directly linked to the rating of the US government. Bonds issued by the governments of Israel and Egypt that are guaranteed by the US government were also placed on review for possible downgrade.

Structured finance securities that hold government-linked debt as their primary collateral have also been placed on review for downgrade. These include transactions defeased by US Treasury strips, transactions backed by FFELP government guaranteed student loans, and US RMBS backed by government agency mortgages.

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[biyorkman]

If dare to rank be an American government bond, might not ZZZ it. It is correct.

[StockMarketFunding]

@biyorkman yield is lower than inflation

[biyorkman]

AAA?Is it a fool?It is a wastepaper like an American government bond etc.

[StockMarketFunding]

@biyorkman that's right!

[rollingcube]

We've been talking about this potential down of US credit rating in the UK for a while down, this was one of the factors facing our government actions during the previous two fiscal rounds.

[StockMarketFunding]

@rollingcube hopefully you guys will get out of these riots soon, you doing OK?

[rollingcube]

@StockMarketFunding I'm fine, I live in a tiny town called Lowestoft well out of the way.Strangely I looked at renting a room for this month in Muswell Hill,London while the regular occupier was at the Edinburgh Festival. However, the girl who as looking for someone went with a fellow actress instead of me.If I would have got it,I would have been living three streets away! I was going there to get some peace and quite (as well as to meet some new musicians).I'm quite glad sort of I'm still home.

[StockMarketFunding]

@smfprotrader yeah, 2008 if they did it they wouldn't have been able to spend like they did

[StockMarketFunding]

@MisterE103 the money powers are collaborating to make sure that continued monetary fiat debt continues unabated! Wall Street always threatens to take Main St to the cleaners via markets if they don't comply, if that's not a racket I don't know what is!

[StockMarketFunding]

@LondonCrusader lol, it's funny how you get the random 1 or 2 down votes on the truth, hater want to hate and watch the money pile up (50 cent + ben bernanke)! Our money is certainly piling up on a de-leveraging stand point