Bloomberg News

U.S. Is ‘Long Way’ From Default Risk, S&P Analyst Tan Says

September 15, 2011

(Adds analyst comment from second paragraph.)

Sept. 15 (Bloomberg) -- The U.S. is a “long way” from risk of default and Treasuries are still the safest dollar assets, said Kim Eng Tan, senior director for sovereign-debt ratings at Standard & Poor’s.

“We are still a long way from the U.S. coming down to a level where default risk is a concern,” Tan said today at a conference in Singapore. The U.S. debt market “remains the largest and most-liquid market in the world.”

S&P, a New York-based unit of McGraw-Hill Cos., downgraded the U.S.’s AAA credit rating for the first time on Aug. 5, lowering the ranking to AA+. The company kept the outlook on the rating at “negative,” saying it was becoming less confident that Congress will end Bush-era tax cuts or tackle entitlements.

Moody’s Investors Service and Fitch Ratings affirmed their top rankings on the U.S.

Treasuries have surged and the dollar has strengthened since the rating cut as concern that Europe’s debt crisis will worsen and the U.S. recovery will slow spurred demand for the safest assets. The yield on the 10-year Treasury note, a benchmark for everything from home mortgages to corporate bonds, slid to a record 1.8770 percent on Sept. 12, and the greenback has gained against all but the yen among its major counterparts since Aug. 5.

A double-dip recession in developed economies could hurt countries in the Asia-Pacific region, S&P said separately today in a release accompanying a series of reports this week. China can maintain its growth record if it steps up its program of economic reforms, the release said.

The U.S. is in a unique position because it’s the issuer of the world’s reserve currency in the dollar, Tan said today. Even AAA-rated assets are not risk free, he said.

“If you are trying to look for another benchmark, you have to look for companies or other issuers that issue AAA,” he said. “The fact that they get AAA is that they have a tiny amount of debt. I’m not too concerned that we’ll run out of benchmarks.”

--Editors: Benjamin Purvis, Garfield Reynolds

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Jonathan Annells at jannells@bloomberg.net


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