Bloomberg News

Chambers Says Debt Deal Failure May Press U.S. Rating

November 01, 2011

(Updates with credit default swaps in last paragraph.)

Oct. 26 (Bloomberg) -- John Chambers, a managing director of Standard & Poor’s, said a failure by the congressional supercommittee to reach an agreement to bring down the U.S. debt could do further harm to the nation’s credit rating.

If the panel can’t reach agreement and Congress thwarts the across-the-board cuts to defense and domestic programs that would be automatically triggered, the U.S. could face additional downgrades, Chambers said in a telephone interview.

“If it gets watered down, that puts downward pressure on the rating,” he said.

After partisan disputes dragged out negotiations over the debt limit, Standard & Poor’s lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. The rating firm said the government is becoming “less stable, less effective and less predictable.”

Even so, the government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was 2.20 percent today.

Moody’s Investors Service and Fitch Ratings have affirmed their top rankings on U.S. credit, and investors have shown increasing confidence. The cost of insuring U.S. government debt against default, as shown by credit default swaps on Treasury securities, has declined since early August to become the cheapest among the Group of 10 nations.

--With assistance from Mike Dorning in Washington. Editors: Robin Meszoly, Mark McQuillan.

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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